Volatile rand ‘bad story for economy’
Finance leaders say uncertainty about the rand’s showing is the worst of it
THE FLUCTUATING rand is making trading and business difficult for many local companies.
Paul Stewart, managing director of Plexus Asset Management, said: “The rand’s 2011 year-to-date performance has been poor, devaluing 23 percent against the euro and 26 percent against the US dollar.”
According to a report compiled by Reuters, the rand has tumbled two more percent against the dollar, further illustrating the inconsistency of the SA currency’s performance in the global market.
Stewart said: “The conundrum is why the currencies of emerging market countries, who have far better fiscal and monetary conditions relative to the developed world countries whose economies are really in dire circumstances, have in fact devalued. The owners of the world’s capital are clearly not ready to embrace the emerging market story in any significant way yet.”
Stewart said if things continued this way, it could spell major problems for emerging economies across the globe.
“Obviously, currency volatility has negative consequences on trading and business in general. While the volatility can be positive (the rand strengthens versus the trading partner) or negative (the rand weakens), it’s really the uncertainty of a volatile currency that makes business and capital planning complicated. A weak but stable currency can be planned for far better than an unusually volatile one.”
Stewart said the fluctuating rand had already caused major problems in terms of future planning. He also expressed concern for importers and exporters facing ups and downs
Worry about weak European economy is major driving force
behind weak rand
because of the turbulent rand.
He added: “While we may feel that the recent volatility has been extreme, the reality is that it has only been since August 2011 that the volatility has really escalated. Prior to this the volatility was actually low for two years.”
Dawie Roodt, chief economist at the Efficient Group, said: “The main driving force behind the weak currency has been worry caused by the weakening euro economic situation.”
He said the weak European economy had caused a major scare across the globe.
“The major scare has come from Europe, because if the euro collapses, it will cause a global depression.”
Roodt added that the situation could cause a rare economic condition for SA known as stagflation, which occurred when there was high unemployment and a slowing economy.
“The current economy has seen inflation rise while growth has been relatively slow, which ultimately could cause stagflation, which makes for a poisonous cocktail for South Africa.
“Exporters will be happy for the time being as they will receive more for their money, yet importers will struggle and be extremely unhappy. Considering all facts, it certainly makes for a bad story for the economy.”
Roodt said there was a need for a stable currency as the turbulent rand had made it difficult for local businesses to make plans, or put them into operation.
Brigid Taylor, head of institutional sales at Nedbank, said efforts made by the EU were disappointing and caused tentative risk trades.
“The euro zone debt crisis has been one of the biggest factors influencing the rand in the past months, overshadowing domestic events.
“The rand is highly liquid, and the relatively highly traded currency causes it to be seen as a barometer for risk sentiment.”
However, Stewart said the situation had been worse.
He said even though volatility had increased in recent times, it was still not close to the levels experienced in the midst of the global financial crisis in 2008/9.
UPS AND DOWNS: Currency fluctuations have been plentiful.