The Nation Newspaper

Tag: Rand

  • South Africa’s rand weakens after World Bank cuts growth forecast

    South Africa’s rand retreated early after the World Bank cut its economic growth forecast and took a dim view of President Cyril Ramaphosa’s stimulus plan.

    The rand was 0.29 percent weaker at 14.6875 per dollar at 0650 GMT, having closed in New York at 14.6450.

    The currency is expected to trade between 14.4500 and 14.8500 to the dollar, NKC African Economics wrote in a note.

    The World Bank cut South Africa’s economic growth forecast for 2018 to 1 percent from an earlier forecast of 1.4 percent.

    Investors remain skittish on the rand following the announcement on September 21 of a stimulus programme that will see a reallocation of the budget but does not involve an injection of new cash.

    In fixed income, the yield on the benchmark government bond due in 2026 flat at 9.090 percent.

    Stocks are due open weaker at 0700 GMT, with the JSE securities exchange’s Top-40 futures index down 1.26 percent.

    Mining firms say Zambia’s tax hike plan would ruin economy

    Zambia’s proposed mining tax increases would hobble Africa’s second biggest copper industry, companies said, a further warning to investors already concerned about the country’s mounting debt.

    Several mines would become unprofitable if the tax plans were implemented with overall copper production likely to fall, Zambia Chamber of Mines President Nathan Chishimba said.

    “More tax regime instability, massive increases, and novel taxes not seen anywhere else in the world, will hurt the mining industry and all those who rely on its success,” Chishimba said in a statement.

    “As industry production shrinks through the impact, there will be less jobs, less taxes and as a result there will be less in the government’s bank account for many years to come.”

    Some companies have already scrapped expansion plans since Zambia announced new mining duties and an increase in royalties to help bring down mounting debt, Chishimba said.

    Zambia argues that its mainstay copper industry unfairly benefits foreign companies like First Quantum, Glencore and Vedanta Resources, while millions of its citizens suffer without basic services.

    Chishimba said attracting investment was the only way to boost growth and increase government revenue. Mining accounts for more than 70 percent of Zambia’s foreign exchange earnings.

    Concerns about Zambia’s rising debt, alongside accusations of additional hidden borrowing and government corruption, have spooked investors and Western donors in recent months.

  • No benefit in Rand intervention, says SA’s reserve Bank

    The South African Reserve Bank has no intention to defend the currency given the muted impact of a falling rand on inflation and the benefits it provides to Africa’s second-largest economy, Governor Lesetja Kganyago said.

    The currency’s decline is a result of the Chinese slowdown and expected monetary policy normalisation in the U.S., Kganyago said September 5 on the sidelines of a G-20 meeting of central bank governors and finance ministers in Turkey’s capital, Ankara.

    “There is no amount of central bank involvement that would do anything to stop a currency from aligning to what the macroeconomic fundamentals are,” Kganyago said. “We have had a shock to our commodity prices and the currency has depreciated. It just provided a cushion to our export sector.”

    The rand tumbled more than eight per cent since the start of August on concern that prices for commodities, which account for more than half of the nation’s exports, will plunge further as China’s economy slows. While the bank has repeatedly cited a weak currency as the biggest risk to consumer prices, Kganyago played down the feed-through impact, citing the decline in oil prices.

    “What we have seen is that with every episode of the rand’s depreciation, the pass-through from the depreciation of the currency into the inflation rate had been muted and had been lower,” he said. The rand’s depreciation “is also accompanied by the decline in the oil price and the decline in the oil price is disinflationary.”

    The currency weakened less than 0.1 percent to 13.8588 per dollar in Johannesburg on Monday, taking its drop since the start of the year to 17 percent.

    The Reserve Bank raised its benchmark repurchase rate by 25 basis points to six percent in July, the first policy move in a year, to help fight inflation that accelerated to five percent in July. Kganyago said on August 11 that the current tightening cycle would be moderate.

     

     

    The oil-price decline “gives a fillip” to the South African economy through lower energy bills as the nation imports about 70 percent of its crude-oil requirements, the governor said.

    The bank may have to cut its economic growth forecast for this year after the economy contracted by an annualized 1.3 percent in the second quarter, he said. The monetary policy committee said in July that the economy will grow 2 percent this year and 2.1 percent in 2016.

  • South Africa’s business confidence hits 16-year low, weakens rand

    South Africa’s business confidence fell to its lowest level in more than 16 years due to subdued domestic economic performance and global financial market turmoil, a survey showed on Thursday, pushing the rand to a week’s low against the dollar.

    The Business Confidence Index fell to 84.3 last month, retracting to an even lower level than in June after increasing 87.9 in July, the South African Chamber of Commerce and Industry (SACCI) said in a statement.

    The rand fell one percent in response to the report, touching a session trough of 13.5735 to the dollar, its softest in more than a week, according to Thomson Reuters’data.

    “The slow growth of 1.2 percent year-on-year in South Africa for the second quarter of 2015 concerns SACCI. An uncertain local economic policy climate perpetuates the underperforming economy and dwindling local business confidence,” SACCI said.

    Africa’s most advanced economy shrunk by 1.3 percent in the second quarter for the first time in more than a year, raising the risk that labour disputes and slowing Chinese demand for commodities could push it towards recession.

    “The turmoil following China’s decision to devalue its currency has spread throughout the globe and the South African economy is certainly not immune,” said Dennis de Jong, an analyst at UFX.com.

    Moody’s Senior Vice President, Kristin Lindow, said in a statement on Wednesday that electricity shortages, low commodity prices, a drought and weaker-than-expected global growth will constrain the economy over the next 18 months.

    The volatile and lower commodity prices together with unpredictable financial markets, contribute to the uneasiness, the business body said.

    Slower growth in China, a key importer of local commodities, has had an impact on commodity prices, adding pressure on the local mining sector. Almost 12,000 mining jobs were on the line in South Africa as mining companies cut costs.

  • Rand is double-edged sword for South Africa

    South Africa’s rand is proving to be a double-edged sword for the nation’s current-account deficit.

    While the currency’s slump to a 13-year low this month against the dollar should be benefiting exports, that’s being offset by rising import costs at a time when electricity utility Eskom Holdings SOC Ltd. is buying more diesel to run emergency gas turbines because of a power shortage. The weaker rand has pushed inflation to the highest this year and fueled a sell-off in bonds. An index of South Africa’s local-currency debt lost three percent for dollar investors this quarter, compared with average gains of 0.4 percent among 31 emerging markets tracked by Bloomberg.

    The rand’s drop probably didn’t boost exports enough to narrow the deficit on the current account, the widest measure of trade in goods and services, in the first quarter. A central bank report on Tuesday will show the shortfall unchanged at 5.1 percent of gross domestic product, according to the median estimate of 15 economists surveyed by Bloomberg.

    “With Eskom’s operation of diesel-powered stations, it definitely will push the oil import bill higher,” Isaac Matshego, an economist at Nedbank Group Ltd. in Johannesburg, said by phone. “The weaker rand is definitely putting pressure on the import bill.”

    South Africa ran a 32.6 billion rand ($2.7 billion) shortfall on its trade account in the first three months of the year, compared with 27 billion rand in the same period last year, according to data from the South African Revenue Service. Eskom says it will need an additional 10.9 billion rand to import diesel in 2015 as it struggles to meet demand for electricity.

    The utility is running diesel plants to augment power supply and limit blackouts. Eskom has increased rationing of electricity since November because of plant breakdowns and delays in bringing new facilities online. The power crisis in stifling factory production and curbing the ability of manufacturers to boost exports and take advantage of the weaker rand.