South Africa threatened by slide in rand's value
By Christopher Munnion in Johannesburg
FEARS of an economic recession in South Africa, which could thwart the
government's plans to narrow the wide gap between the country's rich and
poor, have been raised by the latest fall in the value of the rand.
International currency speculators were blamed for targeting the rand
which this week reached record lows of six to the US dollar and more
than 10 to the pound. The rand has lost 7.5 per cent of its value in a
week and 22 per cent so far this year.
Johannesburg's stock exchange and the bond markets were also hammered as
a result of the weakening currency. The situation steadied slightly
yesterday after major banks increased their prime overdraft rates to
22.25 per cent.
The Reserve Bank also moved to protect the rand by increasing its repo
rate, the rate at which the central bank lends to commercial banks, to
20.78 per cent from 18.31 per cent last week. Economists said the high
interest rates, if prolonged, would almost halt economic growth this
year and seriously affect next year's growth rate which was expected to
be robust.
The rising rates were also a bitter blow to the government's economic
plans to provide a better life for the impoverished, largely black,
majority in the run-up to next year's second democratic general
election. Increased lending rates will effectively smother borrowing and
growth.
Maria Ramos, South Africa's director-general of finance, acknowledged
that the government's estimate of a three per cent growth rate was under
threat. Some analysts tried to put a favourable spin on the currency
crash, saying that it would make South Africa an even more attractive
place for foreign tourists and slow the "brain drain" of professionals
by making it too expensive for them to move to other countries.
The weaker rand is already pushing up the rand price of gold and this,
the optimists say, will halt the closure of gold mines.
Nico Czypionka, the Standard Bank's economist, said the rand crisis was
not all bad news. He said: "Currency depreciation is actually a
stimulatory step. The profitability of the gold mining industry and
other export industries will improve significantly."
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