Rand rout a blessing in disguise for Zim

The falling rand should be taken as a blessing in disguise by both individuals and Zimbabwean companies, said local analysts. The rand fell to a new 13 year-low against the dollar last week, trading at R12.3775/$, its weakest level since January 2002, according to Thomson Reuters data.

And this week, the rand was slightly weaker in light trade on Wednesday morning as investors awaited the release of local inflation data and the outcome of the Federal open market committee (FOMC) meeting.

At 8.30am the rand was at R12.3837 to the dollar following a close of R12.3504 on Tuesday.

Against the euro the rand was at R13.1079 from a close of R13.0786 and was at R18.2655 against the pound from a previous close of R18.2109.

The euro was at $1.0583 from a previous close of $1.0596.

February or March could be the last months to witness a deceleration in inflation. Inflation is set to start accelerating again in the coming months.

Later in the day the Fed’s two-day policy meeting will come to an end in Washington. Speculation is rife that Fed will lose its “patient” stance and signal to markets it will increase interest rates sooner than expected — possibly as early as June.

The bank has held its benchmark federal fund rate at zero for more than six years in the hope of stimulating the US economy.

The outcome from the meeting will be crucial. SA is vulnerable because of its large external funding requirements. A rise in US interest rates will take capital flows from emerging markets and divert them into the world’s largest economy.

Barclays Research said in an early morning note that the local unit’s reaction to the Fed’s news could be limited as the rand had already weakened substantially on speculation that the committee would become more hawkish.

“Conversely, if the Fed statement is deemed to be less hawkish than expected, then rand and other risky assets are likely to enjoy some significant short-covering over the coming days and ensure a less bearish rand bias over the coming weeks,” the research team said.

Zimbabwe, which is a net importer of goods from South Africa and uses the much stronger United States dollar, is however set to benefit from the weakening rand.

Zimbabwe’s import bill from South Africa in November 2014 stood at $2.5bn.

“If we are to maintain the same quantities our import bill will certainly come down and this will go a long way in easing our current liquidity crunch,” said one analyst.

Most of the processed goods in Zimbabwean shops are imported from South Africa, with the country’s major retailer OK Zimbabwe importing more than 70% of its groceries from South Africa.

Its major competitor, TM Supermarkets, also sells mostly imported goods as it is partly owned by South African retail giant Pick n Pay.

Another analyst, Jerome Negonde, said the benefits of the falling rand might not filter down to the final consumer “as most businesses tend to enjoy much of the profits”.

Said Negonde: “If you look at the previous reduction of oil prices on the global market, nothing happened to the local economy on prices. In that regard this fall in the rand might not benefit local consumers.” — Fin24.