(4 minutes read)
· While South Africa’s fiscal fundamentals are lackluster, investors are attracted by the rand’s relatively high yields and liquidity, as compared to other currencies in the emerging economies
· The rand firmed up 5.2% this month for investors who borrow dollars, which is said to be the highest among 23 major emerging markets’ currencies
While South Africa’s fiscal fundamentals are lackluster, investors are attracted by the rand’s relatively high yields and liquidity, as compared to other currencies in the emerging economies. The rand firmed up 5.2% this month for investors who borrow dollars, which is said to be the highest among 23 major emerging markets’ currencies.
Many analysts fail to fathom the dynamics of rand’s surge. The median forecast was that the rand would close at 17.20 per dollar this quarter, which is a decline of around 4.2% by the end of September. At this rate, many analysts feel that it is quite unlikely the rand hitting that target.
There are analysts also who hold the view that firming up of Rand against the dollar is an illusory one since no currency can gain strength while macroeconomic fundamentals like inflation, fiscal deficit etc are not in place. They hold the view that the surge in the value of rand may be a passing phase and sooner or later it would find
its right value against the dollar.
There are analysts who hold the view that the firming up of rand was not totally unexpected. The dollar has lost sheen in recent days because of the escalating number of cases of Covid-19. Dollar can be wobbling if the situation continues. Also, almost all emerging economies’ currencies are traded at a loss. Rand has a slight edge over others. That could be the reason for people buying rand in Africa and South Africa in particular.
