Ouch! The rand is now over 15.6 to the dollar

The weaker rand and shrinking economy create a quandary for the Reserve Bank at its upcoming policy meeting

05 September 2018 - 10:37 By Andries Mahlangu
Newly printed one hundreded rand Mandela notes.
Newly printed one hundreded rand Mandela notes.
Image: REUTERS

The rand’s weakness gathered speed following data showing the economy slipped into a technical recession in the second quarter - the first time since 2009.

The economic contraction raised concern about whether SA will be able to balance its books‚ as required by the major credit ratings agencies.

The rand fell as much as 2% against the dollar‚ to its weakest point since May 2016‚ according to the Iress data.

The yield on the benchmark R186 bond‚ meanwhile‚ spiked to 9.35%‚ from 9.22%.

The rand has also been caught up in the storm brewing around emerging markets. The Turkish lira was weaker on Wednesday‚ as were the Mexican peso and Russian rouble.

The weak state of the local economy and the weaker currency will put the Reserve Bank in a quandary when its monetary policy committee meets later in the month to decide on interest rates.

"The key question now is how much longer will the policy makers through the volatility in the currency before taking some action‚" said Halen Bothma‚ analyst at ETM Analytics.

The Bank’s meeting takes place against a backdrop of rising inflation and high oil prices.

Inflation accelerated to an annual rate of 5.1% in July‚ rising closer to the upper limit of the Reserve Bank’s target band of between 3% and 6%.

Brent crude has recently flirted with $80 a barrel‚ its highest since November 2014.

At 9.31am‚ the rand was at R15.6679 to the dollar‚ after plunging nearly 11% in August‚ which marked its biggest monthly drop in more than two years.

For anyone planning a trip abroad‚ the effect on accommodation and food abroad has been dramatic.

BusinessLIVE priced an ordinary meal and a modest room in New York‚ London and Paris to illustrate just how much the price has gone up. 


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