The rand is the loser of the week – and the economy isn’t helping: analysts

The rand weakened more than any other major currency last week, falling 3% against the US dollar.

“Though it was a victim of souring sentiment toward developing nations, it’s hardly being helped by South Africa’s economy, which UBS Group AG forecasts will expand just 1.2% this year, lower than any of its peers and substantially below the average for emerging markets,” reports Bloomberg.

“That’s causing investors to bet that the chances of currency support through a hike in interest rates are slim.”

Similar sentiment was expressed by the International Monetary Fund (IMF) which recently completed a surveillance visit to the country.

In a report released on Tuesday (12 June), the IMF said that the country was well positioned but needed to do more to see greater benefits on a global scale.

“South Africa’s potential is significant, yet growth over the past five years has not benefitted from the global recovery,” it said.

“The economy is globally positioned, sophisticated, and diversified, and several sectors—agribusiness, mining, manufacturing, and services—have capacity for expansion.

“Combined with strong institutions and a young workforce, opportunities are vast. However, several constraints have held growth back.

“Policy uncertainty and a regulatory environment not conducive to private investment have resulted in GDP growth rates that have not kept up with those of population growth, reducing income per capita, and hurting disproportionately the poor,” the IMF said.

It further noted that the projected growth rate of 1.5% was still insufficient to make a meaningful dent in unemployment, poverty, and inequality. however it added that growth is unlikely to exceed 2% over the medium term.

The rand was trading at the following levels against the major currencies at 08h30 on Wednesday (13 June):

  • R13.37 to the dollar (-0.32%)
  • R17.86 to the pound (-0.16%)
  • R15.69 to the euro (-0.16%)

Read: 10 things South Africa has to do to get the economy moving again

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