Struggling rand and rising inflation fuel concern in SA

 

South African financial analysts were yesterday taking stock of the economy as the rand, plunging to a four-month low on the dollar, hovered near the R11 level against the US currency amid predictions that there was worse to come if it broke through the R11-to-the-dollar barrier.

It was the second consecutive day that the rand struggled to stay above the R11 barrier amid concerns over the near double-digit inflation in figures posted on Tuesday.

Figures released by Statistics South Africa - the official statistical agency - disclosed that the consumer inflation rate for July was 9.9 per cent.

It raised fears that the Reserve Bank would not achieve its target at the end of the year of an annual inflation rate of 3-6 per cent.

Instead of falling, as anticipated by most private sector economists, the inflation rate rose from 9.8 per cent in June to 9.9 per cent last month. It was the 10th consecutive month that the inflation rate rose and the ninth consecutive month that it was above the 3-6 per cent target range.

Of grave concern to the government of President Thabo Mbeki was the rise in food prices in a situation where the poor or, more accurately, its more politicised members, are showing increasing irreverence for the African National Congress government and its representatives at the levels of provincial and local government.

Food prices rose by 16.8 per cent in the 12 months to July, far faster than the average percentage increase in wages over the same period.

The fall in the dollar value of the rand over the past two days meant, according to one financial analyst, that the rand had lost its coveted place as one of the 10 best performing currencies in the world (a status due, in large measure, to its recovery from its calamitous collapse of 37 per cent against the dollar last year).

The decline of the rand against the dollar over the past two days meant that its recovery of 20 per cent against last year's fall was reduced by half.

The currency has also struggled against sterling and the euro.

One factor behind the fall in the rand was the unresolved land question in Zimbabwe, where President Robert Mugabe has ordered 2,900 farmers to evacuate their farms in the midst of a serious food crisis in that country.

Nearly half of Zimbabwe's 12 million people faced the threat of starvation, according to the Johannesburg office of the World Food Programme.

In a bid to neutralise the Zimbabwe factor, South African Reserve Bank governor Mr Tito Mboweni yesterday sought to distance South Africa from Zimbabwe. "We appeal to the markets to look at us for what we do, not for what others do," he said.