Rand slumps to its weakest level in 13 years

THE RAND’S slump to its weakest level against the dollar in 13 years on Friday will complicate even the government’s already dire fiscal position.

The softer rand means more imported inflation and no rate cut from the Reserve Bank at a time when growth is near a standstill.

Emerging markets were heavily sold off on Friday after US job numbers strengthened the case for the Federal Reserve to hike interest rates.

US employers added 295 000 jobs in February, compared with 239 000 in January, driving the unemployment rate to its lowest in almost seven years, data from the country’s Labor Department showed on Friday.

The improving labour market is fuelling speculation the Federal Reserve is poised to start raising interest rates, a move that will draw capital to the dollar and away from emerging markets including Africa’s second-biggest economy.

The rand breached the R12 level against the dollar, the weakest since 2002. Earlier on Friday, Econometrix chief economist Azar Jammine had forecast that by year-end, the R12 level would probably have been comfortably breached.

The currency has weakened about 3 percent against the dollar since Finance Minister Nhlanhla Nene’s Budget speech on Febru- ary 25, adding to price pressures by boosting import costs.

“Emerging market currencies are under severe selling pressure globally after the very strong US job report,” Bernd Berg, a London-based strategist at Société Générale, said by e-mail.

“I expect the sell-off in the rand to accelerate” and the currency might reach R12.20 within days, Berg said. Of the 24 currencies from developing nations tracked by Bloomberg, 17 weakened against the dollar.

Electricity shortages were adding pressure on South Africa’s current account and would probably fuel rand weakness for some time, Murat Toprak, a currency strategist at HSBC Holdings, said by phone from London.

Eskom said on Friday that it expected the power grid to be constrained for the foreseeable future.

The deficit on South Africa’s current account was 6 percent of gross domestic product in the third quarter.

The data for the last three months of 2014 is due on March 17.

“Power outages are having a substantive impact on production and on sectors that are very important for the rand,” Toprak said. “Given the poor macro fundamentals of South Africa this is likely to continue.”

Crude oil’s 30 percent increase since reaching an almost six-year low on January 13 and a 7.1 percent jump in petrol prices from higher fuel levies will push up inflation.