Johannesburg – A massive spike in the rand/dollar exchange rate in the early hours of yesterday is a sign of terrible things to come, according to economists.
“We are in a bit of a currency crisis right now,” economist Mike Schussler told The Star.
Just after midnight on Sunday the rand was trading at 17.91 to the dollar, an all-time low that Schussler believes is linked to a swift removal of Japanese investor funds. Later yesterday, the rand had recovered significantly, returning to 16.67 to the dollar.
Schussler said Asian investors, particularly those in Japan, have lost faith in the relative strength of the rand and that numerous retail investors were seeking to invest in other currencies.
He theorised that the spike was part of such a move.
“We’re going to see a lot more volatility in the exchange rate,” he said.
Economic news website Bloomberg.com reported yesterday that South Africa could see further “manic Mondays” over the next few weeks, also citing the loss of Japanese retail investors pulling out, especially if the rand suffered in the week prior.
According to Schussler, the weakening of the rand will be the cause of price increases across the board, from milk and maize prices to petrol, medicine and air travel costs.
Most affected by such increases will be the poorest of the poor, he said.
Schussler said overseas investors had noticed a series of major issues in the South African economy, from the firing of Nhlanhla Nene as finance minister to the drought affecting food prices.
Because of these factors and the current strength of the dollar, investors were looking elsewhere for more stable investments.
Schussler was quick to note that the 17.91 figure was not an accurate representation of the rand’s current value. However, he predicted that the rand could depreciate further in the coming months.
“This is a crisis and everyone will have to tighten their belt,” he added.
Economist Neil Roets agreed with this sentiment, saying consumers were going to be hard hit in the coming year.
“The protracted drought, the likelihood of an electricity price increase and the probability of a tax hike early this year are going to squeeze consumers to the maximum. The depreciation of the rand will increase the woes of severely strained consumers during the early part of 2016, when the impact on imported goods will be seen,” he said.
“Unemployment is at over 25.5 percent, and the matric class of 2015 will add more than 800 000 job-seekers to the market. Add to this the speculation of a few potential interest rate hikes, and the outlook for 2016 is dire,” Roets said.
Efficient Group’s economist, Dawie Roodt, explained he had calculated that the currency’s undervaluation had hit about 65 percent in relation to the dollar.
But he said the currency had bounced back from worse.
Roodt said that while he could not predict an exact time period for when this would happen, it was up to the government to ensure it did. The government would have to clarify its economic and political policies and ensure correct legislation surrounding labour to attract investors back to South Africa.