Government to blame for weak rand: DA
The Democratic Alliance (DA) has blamed economic mismanagement by the ANC led government as one of the major factors leading to a rate hike and a steep drop in the local currency.
In a statement issued on Thursday (30 January), DA shadow minister of finance, Tim Harris, said that, while many factors have impacted the rand’s depreciation and the Wednesday (29 January) decision by the SA Reserve Bank to hike interest rates, “much of the blame for the mismanagement of the economy can be laid at the door of President Zuma’s ANC”.
The rand had hit a new high of R11.25 to the dollar this week, as investors continued an emerging market sell-off on the back of the US Federal Reserve reining in its stimulus policy.
Shortly after the announcement of the rate hike, however, the rand weakened significantly against the US dollar, rising from a slightly recovered position of R11.02 on Wednesday morning, to a 5-year high of R11.38.
By 12h30 on Thursday, the rand was trading at R11.36 to the dollar.
Tim Harris
Harris acknowledged that other developing countries like Poland, India and Chile had all experienced a similar currency depreciation as part of the generalised shift of sentiment around emerging markets.
“But South Africa’s depreciation has been an order-of-magnitude worse – indicating structural problems in our economy and a lack of confidence on the part of the markets,” Harris said.
“Government’s inability to contain increases in the fiscal and current account deficits has probably been a major contributor to Rand weakness, and our overly rigid labour regime – which entrenches the power of majority labour unions and worsens the negative effect of industrial action – has driven negative sentiment amongst investors.”
According to the shadow minister, the effect of this sentiment has been compounded by increases in debt service costs of 6.4% per annum, as well as in compensation of government employees of 8.3% per annum between 2008 and 2012.
“Along with generalised increases in administered prices, the Monetary Policy Committee really had no choice yesterday but to increase interest rates,” Harris said.
“The move was necessary to combat inflation driven by government’s economic mismanagement, but our economy will suffer as a result.”
More on SA’s economy
Rate hikes fail to stem emerging market pressure
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