A combination of domestic and global factors has pushed the Rand to its weakest in history, according to an economist. Loadshedding and political tension were the key factors resulting in a weakened currency last week.
Last Friday was a bleak day for the local currency as it tanked to its lowest exchange rate against the US Dollar. Allegations by the United States that South Africa supplied weapons to Russia sent it to R19.47, ever so close to the R20 mark.
Local and global factors
Speaking in an interview on Salaamedia, Reezwana Sumad, a research analyst at Global Markets, said loadshedding and talk of a potential grid collapse in winter exacerbated the state of the battered Rand.
“We started off last week with more intense loadshedding, Eskom ramping up loadshedding to Stage 6 and above in certain areas, and we had further communication where people are talking about a grid collapse come winter during peak demand.”
She added that global factors, such as the controversial allegation of weapons being supplied to Russia, took an additional knock on the Rand.
“While it’s a combination of local as well as global factors, it does seem as though the recent blow out is as a result of political tensions in SA in the last week.”
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Solutions
Sumad maintained the first steps to recovery for the Rand would be greater political stability and greater electricity availability. These, she said, were unlikely to be achieved soon but she maintained an optimistic outlook regardless.
“We need more stability in the grid [and] more electricity availability in the country, better infrastructure. Those two factors will really boost economic growth in South Africa. Once we have enough electricity to supply the economy, growth will increase 200 basis points – that’s more than tenfold from what is projected this year.”
She said although political stability was unlikely to materialise ahead of the 2024 elections, the Rand could strengthen to around R18.00 towards the end of the year. This, she explained, was owing to a weaker American economy.
“The Rand is expected to remain weak in the current quarter, up until the end of June, and into August. We are expecting slight strength in the latter part of the year and that is mainly on the back of a weaker Dollar with the US Federal Reserve pausing in terms of interest rate hikes and the US economy also showing some signs of slowdown,” said Sumad.
