Wed Dec 07 10:34:27 SAST 2016

Currency stronger but the economy is still in chains

The Times Editorial | 2016-03-31 00:17:20.0

The rand did an amazing thing yesterday.

After three months in the doldrums it rebounded sharply to close at R14.93 to the dollar - a level not seen since the day before President Jacob Zuma fired Nhlanhla Nene, triggering a run on the beleaguered currency.

Unfortunately, domestic factors did not drive yesterday's gains, which put the rand on track for its first quarterly gain since 2012.

Janet Yellen, the Federal Reserve Board chairman, triggered a rise in emerging market currencies with her comment that US monetary policy-makers need to act ''cautiously'' in raising interest rates in light of generally sluggish world economic growth.

A weaker dollar is generally good for the rand, partly because commodity prices are denominated in dollars and South Africa is a major producer of commodities.

The prices of some commodities, such as gold iron ore and oil, have also recovered some losses in recent weeks, suggesting that the resources cycle might finally have bottomed out. That would be good news indeed for South Africa.

Economists, however, have warned that further appreciation of the rand might be limited because the fundamentals for a stronger currency are simply not there.

The economy will undoubtedly benefit from a stronger rand - for one thing, the Reserve Bank is now less likely to raise the repo rate again in May.

But economic growth remains far too slow and a downgrading of our sovereign credit rating to sub-investment grade - junk status - within three months is a distinct possibility.

Then there is domestic politics.

The public hounding of Finance Minister Pravin Gordhan during Budget week smashed the rand, and the factional nature of ANC politics means there is no guarantee, now he has answered the Hawks' questions about the ''rogue'' SARS unit, that he will be left alone to continue the important work of turning South Africa Inc around.

SHARE YOUR OPINION

If you have an opinion you would like to share on this article, please send us an e-mail to the Times LIVE iLIVE team. In the mean time, click here to view the Times LIVE iLIVE section.
X