Cape Town - After the rand reached a new all-time low of R19.35 against the US dollar on Monday, there were fears among analysts and bankers that the currency could fall further still in the short term.
The rand’s weakening comes as the Covid-19 pandemic takes its toll, as well as fears that last month’s downgrade by Moody’s to junk status will spark substantial further foreign disinvestment from the South African bond market.
Global head of currency strategy and market research at FXTM, Jameel Ahmad, said: “I have long maintained the view that the rand is heading for R20 to the dollar, and I feel this is still the case, and of course this is worrying for South Africa. The next few weeks are going to be crucial for the rand.”
A fund manager at Anchor Capital, Nolan Wapenaar, said: “South Africa suffers from a lot of self-induced problems: our poor fiscal position; excessive debt; the recent downgrades by Moody’s and Fitch; the probable downgrade by S&P shortly; and the imminent expulsion from the World Government Bond Index all mean that in a weak environment South Africa is going to be punished more than most.
“We note that the ANC, Cosatu and the SACP signed a letter on Monday which suggested that the solution to too much debt is to rather borrow from alternate sources (China, the Reserve Bank or pensions).
“Unfortunately, the proposal amounts to living on borrowed time and to the extent it is implemented without structural reforms, we should expect the rand depreciation to accelerate in the future. Much depends on how the government chooses to navigate these difficult times,” said Wapenaar.
Chantal Marx, head of investment research at FNB wealth and investments, said: “A weak currency does make our exports more attractively priced, so there could be a boost in demand for manufactured and other goods from outside of South Africa.
“The problem currently is that supply chains and demand frameworks are impacted globally, so this could have a prolonged impact on export demand.”
Mike Keenan, Absa SA's head of strategy research, said: “Once the World Government Bond Index (WGBI) rebalance is complete, there could be some light at the end of the tunnel for local importers.”
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