Rand Holding Steady Despite Announcements

Rand Holding Steady Despite Announcements

The South African Rand has continued to hold steady against the US dollar despite a weekend that saw a number of potentially detrimental influences.

Impact Events

Top of the list of recent events was the ANC NEC government strategy conference, which was followed on by an address from President Cyril Ramaphosa.

The President outlined the areas of discussion at the meeting, which included the issue of ongoing gender inequality in the country, the COVID-19 vaccine process, the accentuation of long-standing problems in the nation caused by the pandemic, and the country’s role in climate change.

Of these, the markets were most keenly focused on news of the vaccine rollout, however, the President was unable to provide concrete information on how this will occur, which is likely to lead to continuing caution from the local population.

South Africa World View

Other potential currency impacts included the announcement by US President Joe Biden of a travel ban on South Africa, as part of the effort to combat the new strain of COVID-19.

This appears to have had little impact on the Rand, however, as tourism to South Africa is already at a record low.

COVID-19 has intensified the economic issues facing South Africa, but the country was already suffering from significant decline before last spring.

Growth had fallen from 3% in 2010 to 1.5% in 2019 and the country technically entered recession in Q4 of 2019. Unemployment had also soared during that period, reaching 29.1% in Q3 of the same year.

A decade of expenditure restriction, the declining value of many commodities and ongoing political issues have conspired to produce a difficult fiscal situation. With growth rates falling below the interest rates on sovereign debt, the country faces serious fiscal problems going forward.

One theory has been that the falling growth rate can be counteracted by inflating the value of the Rand, and the state of global monetary conditions has made it feasible for the national Reserve Bank to extend forms of support such as bond purchases to protect liquidity in the short term.

 

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