Profit run weakens rand
Mantshele wa ga Tau
23 January 2003
Top economist Tony Twine has attributed the Rand’s low performance this week to the withdrawal of profit by portfolio asset investors early in the first two weeks of 2003.
"After a good business in December – during the best performance of the currency – they decided that it was time to take their money somewhere else where they are likely to make more profit," Twine explained.
However, Twine pointed out that the Rand’s current run (it broke through the R9 mark to the US Dollar on Tuesday) was not necessarily a bad thing.
"In fact, the markets can settle well and consumers still benefit when it trades around R9.50 to the US Dollar. Important players, exporters, fell uncomfortable at the rate below R9.00."
Asked about increased pressure on interest rates, the Econometrix economist said Reserve Bank Governor Tito Mboweni’s move last week to quell the market – in line with the open mouth operation policy – was well timed.
"To drop interest rates now might even cause the Rand to weaken beyond comfort zone. We are still in a delicate position of inflation target management, so a quick reduction of the interest rate might upset the apple cart," he commented.
Standard Bank economist Johan Botha concurred that yesterday’s downward performance of the Rand was influenced by a switch from the buying of Rands to the US Dollars by market players.
"We live in an unstable world. And this is possibly a rational response by the market during this time," Botha explained, adding that uncertainty in the international market was doing the Rand no good.
"Unfortunately, we cannot do much about this locally. The possible invasion of Iraq by the US is also an impeding factor not only for the Rand, but for other major currencies as well."
According to him, importers and exporters are at the moment experiencing ‘leads and lags’ – holding back their money because of uncertainty and the volatility
of the Rand.
"However, the Telkom’s Initial Public Offering (IPO) is so much of a positive factor…the Rand would really get a boost from the R6-billion profit to be made."
Botha added that though speculation about interest rate cuts in March or earlier have been done away with, South Africa still feels the effects of the high rates because there is now capital outflow – meaning that the Rand is not being bought.
Last year, interest rates hike boosted the Rand by attracting capital inflow into the country, especially during December. The currency had reached a record level of R8.37 to the US Dollar.
On Wednesday the Rand was selling at R8.95 to the US Dollar, R14.38 to the Pound and R9.53 to the Euro.
Source: BuaNews
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