- Rand traded at 18.9
- Moving nearer to its lowest point in three weeks
- The decline of the Rand is due to many reasons including blackouts
Harare- The South African Rand opened the week on a weaker note against the US dollar, despite the continued imposition of high interest rates. The currency was trading at 18.9 against the US dollar, approaching a three-week low of 19.2, which was recorded on September 5th, 2023.
A weaker Rand implies that South Africa will require more funds to purchase essential imports, resulting in a negative trade balance. Additionally, for individuals in the country who send remittances to Zimbabwe, it means they will need a larger number of Rand to send even a modest sum of 100 dollars back home.
The South African Reserve Bank (SARB) decided to keep its benchmark interest rates unchanged at 8.25% during its latest meeting. This rate is the highest it has been in 14 years. The SARB also indicated that borrowing costs are expected to remain elevated for an extended period due to ongoing risks of inflation.
By keeping the rates unchanged at a record 14-year high, the South African Reserve Bank anticipates limited liquidity in the market. The decision reflects the aim of discouraging excessive borrowing and reducing the availability of funds due to the high cost of borrowing.
However, the depreciation of the Rand is influenced by factors beyond the liquidity or scarcity of the currency.
The power crisis in South Africa has had a notable impact on the Rand. The country has been dealing with extensive electricity power cuts, ranging from Stage 1 to Stage 8 load shedding. This has placed a heavy burden on industries including manufacturing, mining, and services. The power shortages and subsequent load shedding have caused disruptions and uncertainty, affecting business operations and investor confidence. Consequently, these factors have contributed to the depreciation of the Rand.
Additionally, President Ramaphosa of South Africa has faced criticism for his handling of international affairs, particularly concerning democratic principles. Some have accused him of engaging in blind politics, where his decisions and actions may not align with democratic values and principles. This criticism highlights concerns about his approach and stance on global political issues related to democracy.
South Africa's strong alignment and close relationship with Russian President Vladimir Putin, who is known for his autocratic leadership style, have raised doubts about President Ramaphosa's commitment to upholding democratic principles. His unwavering support for the controversial Zimbabwe elections has further fuelled concerns about his stance on democracy. These actions have led to scepticism regarding his principles and dedication to promoting democratic values.
President Ramaphosa has been criticizing the West for what he perceives as their desire to exert control over the world. He has specifically blamed the West for imposing sanctions on Zimbabwe while seemingly disregarding human rights abuses in the country. This stance has drawn attention and raised concerns about his approach to addressing human rights issues and holding governments accountable for their actions.
All of these factors, including the power crisis, President Ramaphosa's international relations approach, and the perceived disregard for human rights issues in Zimbabwe, are contributing to the ongoing depreciation of the Rand. The combination of economic uncertainties, political concerns, and investor sentiment influenced by these factors has put downward pressure on the currency.
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