SA affected by lira’s woes
IF YOU were hoping for a fuel price decrease during the next price adjustment, forget it. After four successive hefty price increases and a mild 1c/l rise at the beginning of this month, many were starting to feel confident that we’d see a drop next month. But the woes besetting the Turkish currency, the lira – and which have had a major effect on other emerging market currencies – have put paid to those hopes.
Yesterday the rand fell over 8% to its weakest level in more than two years against the US dollar, breaching the R15 mark as turmoil in Turkey turned investors against emerging market currencies.
The rand’s depreciation, which took it to around R15.40 against the dollar at one point, reflected weakness in the lira in the wake of sanctions imposed by the US, with other emerging market currencies such as Argentina’s peso also affected.
Tensions between the two countries have risen over Turkey’s detention of a US pastor, Andrew Brunson, who is on trial for terrorism charges. US President Donald Trump sent the lira tumbling when he tweeted that he would double tariffs on Turkish steel and aluminium products. The lira plummeted to reach a low of 6.80/$, marking its worst daily performance in more than 10 years. The lira’s tumble affected wider investor sentiment, sparking a shift to safer havens.
The lira slumped around 10% in early Asian trading yesterday with the rand also falling around 8%. Our hope is that the lira does not take another big dive, as it will likely drag other emerging market currencies such as the rand down with it.
Although the rand regained some of the lost ground and by midmorning had clawed its way back to R1.4.30/$, the dollar rally has a lot further to go and this may heap more misery on the rand and other emerging market currencies. This is in large part due to the trade spat between China and US, which has escalated to a full blown trade war characterised by retaliation in terms of tariffs from countries across the globe.
It remains to be seen how the SA Reserve Bank will react. The bank’s mandate is to keep the rate on inflation within the 3-6% band and to adjust interest rates to achieve that target.
The good news amidst all this gloom is that exporters will benefit, but imports such as fuel, priced in US dollar terms, will become more expensive.
At this stage, the lira contagion, and the trade wars, hang like a foreboding, ominous dark cloud.