Alarm bells ring as rand plummets

IOL pic dec14 rand r200 notes new AP File picture: Denis Farrell, AP

Johannesburg - A massive plummet in the rand/dollar exchange rate on Sunday night is a harbinger of terrible things to come, economists say.

”We are in a bit of a currency crisis right now,“ economist Mike Schussler told The Star on Monday morning.

At around midnight, the rand was trading at 17.91 to the dollar, an all-time low that Schussler believes is linked to a swift removal of Japanese investor funds.

However, by Monday morning, the rand had recovered significantly, returning to 16.67 to the dollar. According to Schussler, Asian investors, particularly those in Japan, have lost faith in the relative strength of the rand, and numerous retail investors are seeking to invest in other currencies. He theorised that Sunday night’s spike was part of such a move.

“We’re going to see a lot more volatility in the exchange rate,” he said.

Economic news website Bloomberg.com reported on Monday morning that South Africa could see further “Manic Mondays” over the next few weeks, also citing the loss of Japanese retail investors pulling out, especially if the rand suffers in the week prior.

According to Schussler, the weakening of the rand will be the cause of price increases across the board, from milk and maize prices to the petrol, medicine and air travel costs.

The economist believes that the poorest of the poor will be those who are most affected by such increases.

Schussler said that overseas investors had noticed a series of major issues in the South African economy, from the firing of finance minister Nhlanhla Nene, the major inflation rate increase and the drought affecting food prices. Because of these factors, and the current strength of the US dollar, investors were looking elsewhere for more stable investments.

He was quick to note that the 17.91 figure was not an accurate representation of the rand’s current value, and to rather focus on Monday morning’s figures instead. However, he predicted that the rand could further depreciate in value in the coming months.

“This is a crisis, everyone will have to tighten their belts,” he said.

Economist Neil Roets agreed with this sentiment, saying consumers were going to be hard hit in the coming year.

“The continuous drought, the likelihood of an electricity price increase and the probability of a tax increase early this year is going to squeeze consumers to the maximum.

“The depreciation of the rand will increase the woes of severely strained consumers during the early part of this year, when the impact on imported goods will be seen,” he said.

“Unemployment is at over 25.5 percent, and the matric class of 2015 will add more than 800 000 job seekers to the job market.

“Add to this the speculation of a few potential interest rate hikes, and the outlook for 2016 is dire,” Roets said.

THE STAR

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