The mystery behind the rand\u2019s volatility has been identified in a working paper by the International Monetary Fund, released on Monday.<\/p>\n
The study by Nasha Mave\u00e9, Roberto Perrelli and Axel Schimmelpfennig investigates the possible drivers of volatility in the rand and dollar exchange rate since the onset of the global financial crisis in 2008.<\/p>\n
Increased commodity price volatility and US economic surprises are identified as the two main drivers of rand roller-coaster ride, explains the report entitled Surprise, surprise.<\/p>\n
\u201cWhen it comes to economic data surprises, only US surprises matter for rand volatility,\u201d they explain. \u201cSouth African surprises, including inflation surprises, do not enter as significant explanatory variables.<\/p>\n
\u201cCommodity price volatility can also contribute to exchange rate volatility,\u201d they add, explaining commodity price volatility as a surprise in key economic data.<\/p>\n
\u201cSimilarly, global volatility can translate into local volatility when a country is impacted by investor risk-on or risk-off sentiments.<\/p>\n
\u201cLastly, local political uncertainty can be a further source of surprises that drives exchange rate volatility.\u201d<\/p>\n
They explain that while South Africa cannot control commodity price volatility or global financial market volatility, it can strengthen its buffers.<\/p>\n
These include international reserves and the reduction of external vulnerabilities. This would \u201creduce the susceptibility to volatility\u201d.<\/p>\n
\u201cIn addition, the perception of political uncertainty is something the government can influence in the way it develops and implements economic policy, as well as the way it communicates economic policy decisions.\u201d<\/p>\n