The rand is on the ropes again, breaching the R18/$ mark on Monday for the first time this year and hitting its lowest levels since early November. Prominent domestic factors include the sinking reality of permanent rolling blackouts.
The rand has been here before and will be here again. Basically, it doesn’t have much going for it at the moment.
On Monday, the currency – which is prone to volatile swings – breached the R18/$ mark and hit its lowest levels against the greenback since early November. It has been weakening in fits and starts since the end of last year.
It has also been losing ground against other currencies, “moving closer to R22/£ and R19.50/€, experiencing substantial risk-off against the key crosses, losing ground on both global and SA specific issues”, Annabel Bishop, chief economist at Investec, said in a note on Monday.
Bishop noted several political risks which were taking a shine off the currency, as well as “deteriorating fundamentals”.
“The recently increased appetite of the ANC for coalitions with SA’s far left-wing political party (the EFF) at the municipal level has negatively affected investor sentiment, as has the country’s energy crisis, with load shedding permanent for the foreseeable future,” Bishop said.
Growth forecasts
The permanent state of rolling blackouts has become a common theme with economists and is why they are busy slashing their forecasts for South African economic growth this year.
The South African Reserve Bank (Sarb) sees growth of only 0.3% in 2023, almost exclusively because of the power crisis, which it estimates deducts as much as two percentage points from growth. Accountancy PwC estimates it may be taking as much as five percentage points off.
“For 2023 as a whole, the impact of power cuts on activity levels, business confidence, and private investment cuts our GDP forecast by 0.9 percentage points to 0.7%,” Absa economist Peter Worthington said in a recent research note.
None of this is supportive of the rand. President Cyril Ramaphosa’s Sona last week did nothing to dispel the reality of the power crisis and the currency has been softening since, but this is also an extension of a trend that has been in place for weeks.
Read More…DM/BM
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