Why the rand at R60 to the dollar is ‘extremely unlikely’: economist
A scenario where South Africa’s currency would trade at R60 to the dollar is extremely unlikely, according to economist Dawie Roodt – especially in a timespan as short as two and a half years.
Former Standard Bank economic commentator Chris Hart was quoted on Thursday as saying that, with South Africa’s current economic policies, the rand would trade at “significantly weaker levels” over the next few years.
He said that a downgrade to junk status for the country was likely, and the next “milestone” would be to ask the International Monetary Fund (IMF) for a bailout.
In two-and-a-half years’ time, the rand could trade at R60 against the US dollar, he said.
Read: The rand could hit R60 to the dollar by 2019: Chris Hart
However, according to chief economist at the Efficient Group, Dawie Roodt, while a rating downgrade is likely to happen in 2016, the rand slipping as far as R60 to the dollar within 3 years is extremely unlikely.
“One thing to note is that, at current levels, the rand is already very weak – which is actually attractive to investors. Every currency has a ‘level of ridiculousness’ where it is so cheap that investors can’t ignore it, so it actually moves to become stronger,” Roodt told BusinessTech.
Looking at South Africa, with government bonds still producing an attractive return, and taking things like purchasing power parity into account, “not even ten Jacob Zumas” could push South Africa to this point, which would be well before R60 to the dollar, he said.
Even with the country likely entering junk status, while investors would pull out of South Africa, the country still poses a very attractive option for speculative investors.
Speaking on a possible IMF bailout following a probable junk status downgrade, the economist said this, too, was very unlikely, questioning why it would be necessary at all.
“The IMF would pay out dollars, which would be used to pay off any dollar debts and such. The South African Reserve Bank has enough dollars in reserve, so it would be unnecessary,” he said.
When asked if it was possible for the rand to ever hit R60 to the dollar, Roodt said: “Never say never or forever – but it’s extremely unlikely, and definitely not within three years.”
More on the rand
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Rand strengthens as SA staves off downgrade – for now
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