Renée Bonorchis
10 March 2008
Johannesburg — LAST week was a disaster for the rand, which dropped to record lows against the euro, threatening to boost inflation, increase the risk of rising interest rates and disrupt SA's already large current account deficit.
The rand reached R12,43 against the euro, the currency of SA's major trading partners, and weakened substantially against the pound and the dollar.
To add to the impact, the price of a barrel of Brent crude oil rose to a new record at $103.
All of this may spell disaster for the local economy because the flailing currency and the ever- increasing price of fuel will have inflation figures rushing upwards.
John Cairns, currency specialist at RMB, said renewed concerns over electricity supplies contributed to the rand's slide, but the big story was that of further dislocations in the US credit markets.
"Data on Thursday showed mortgage delinquencies hit their highest levels since 1985, while mortgage company Thornburg failed to meet some of its debt repayments. Global equities are in a rout as a result and even with fresh dollar losses, all global risky currencies faced large losses."
At a Nedgroup Investments conference in Johannesburg last week, Tim Allsop, who founded Polaris Capital, said he was deeply concerned about the rand.
"There are so many potentially compounding negatives on the rand. It's very worrying."
Commodity prices lost some ground on Friday while bonds weakened and the JSE all share index ended in negative territory.
Most experts expect the rand to continue to weaken and the knock-on effects could be serious. Dave Foord, who runs Foord Asset Management, said inflation was probably going to be "a lot worse than we're all expecting ".
Sapa reported on Friday that "portfolio outflows of R12bn and concerns about the outlook for the South African economy had kept the rand well above the R7/$ level during February", according to Nedbank's economic unit .
This had constrained the Reserve Bank's ability to accumulate reserves . Foreign exchange reserves last month rose by only 1,4 % month on month to $30,3bn. The increase in gross reserves (up 1,8% month on month to $34,2bn) was attributed mainly to the sharp increase in the gold price.
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