No recovery for rand seen for five years

THE rand may stay weaker than R10/$ for the next five years at least‚ rather than bouncing back as it did in 2003 and 2008.

Analysts warned on Tuesday that a prolonged bout of currency weakness‚ while supportive of exports‚ could fuel inflation and hurt South Africa’s growth prospects.

Together with the Turkish lira and Argentine peso‚ the rand has been the weakest global currency over the past month.

It experienced a short burst of strength after the US Federal Reserve announced on December 19 that tapering of its quantitative easing was to start at the end of this month. But since last week it has weakened against the dollar‚ and is 3.75% weaker for the month.

On Tuesday‚ the currency was stable at about R10.63/$ in late afternoon trading after weakening to R10.6733/$ overnight. Against the British pound it was at R17.41‚ and R14.48 to the euro.

Barclays Research analyst Mike Keenan says no sharp recovery similar to that of 2003 after the rand crisis in 2001 is expected. “We foresee the rand weakening to R11/$ as tapering commences and do not see it in single digits again over the next five years.”

The rand weakened to R10/$ in May last year and although it recovered to R9.54/$ in September it has since struggled to appreciate meaningfully. This is in contrast with previous recoveries. After reaching a low of R13.85/$ in 2001, it eventually recovered to just above R6/$ in 2004.

Nedbank Capital research head Mohammed Nalla says the rand has now broken meaningfully through R10.50/$‚ which was the main resistance level last year. Although trading in thin volumes‚ the currency experienced a blow-out over the festive period. “It defied our expectations.”

He expects it to depreciate further to R11/$ or even R11.60/$ should the negative momentum in emerging markets persist. Nalla says the rand is now at its worst level since 2008 and in a superlong depreciating trend. Factors to boost it are not expected any time soon. – BDlive