ConCourt ruling could get rand back on its feet
Last week’s Constitutional Court ruling on Nkandla, along with various domestic and global economic factors, would strengthen the rand in weeks to come, according to economist Chris Harmse.
|||Johannesburg - Last week’s Constitutional Court ruling on Nkandla, along with various domestic and global economic factors, could strengthen the rand in weeks to come, Rebalance Fund Managers chief economist Chris Harmse said yesterday.
Yesterday the currency lost the momentum that had seen it strengthen to R14.63 to the dollar on Friday, amid speculation about President Jacob Zuma’s special address about the ConCourt ruling.
Read: Rand weakens on political risk
By 5pm yesterday – the day of the debate of Zuma’s impeachment in Parliament – the currency broke the R15 to the dollar barrier. On Monday, it had traded at R14.83.
Harmse said the rand on Monday declined along with the currencies of other emerging markets after data from Germany showed a decline in exports, a sign that Europe’s largest economy was taking strain from a slowdown in global trade.
He said Friday’s US job data, the financial market stability in Japan and domestic data supported a stronger rand “in the short to medium term”.
Iraj Abedian, the chief executive of Pan-African Capital Holdings, said yesterday that the rand, much like all other currencies, was subject to a variety of both domestic and global forces.
“At times, these forces impact on the currency in the same direction, and at other times they have divergent effects. Clearly, any factor that implies uncertainty, or additional uncertainty, it will affect adversely on the currency,” Abedian said.
He said the ConCourt judgment had a positive initial impact as it brought the rule of law back to the centre stage of the South African political economy.
Harmse said the SA Reserve Bank’s warning of a prolonged breach of the inflation target was unlikely to have a major effect on the currency.
On Monday, the SA Reserve Bank said South Africa faced the prospect of a prolonged breach of the inflation target, even as growth was slowing.
The main reasons for the elevated inflation forecast “are the direct and indirect effects of both higher food prices and exchange-rate depreciation”.
The rand lost 25 percent against the dollar last year, adding to pressure on inflation already fuelled by high energy costs and the worst drought in more than a century that has pushing up food prices. Consumer inflation accelerated to 7 percent in February and the central bank forecasts it will only return to its 3 percent to 6 percent target band in the final quarter of next year.
“Monetary policy can accommodate temporary shocks that cause target breaches, but should respond if those shocks risk leaving inflation permanently higher,” the central bank said.
* Additional reporting by Bloomberg
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