Rand Merchant Bank says the rand might depreciate even more against the dollar before recovering from its current level. But no matter what the rand does in 2009, it will have a direct impact on agricultural production and agribusiness.
The rand might depreciate even more against the dollar before recovering from its current level. According to Rand Merchant Bank (RMB’s) currency research team, it could deteriorate to as low as R15 against the US dollar, but could end the year at about R10,50/US, with volatile trade between R9 and R12. RMB said the rand is not as undervalued as in 2001, when it slumped to R13,85. The recovery therefore won’t be as big, especially since commodity prices are weak at the moment and won’t be able to support the currency.
According to Razia Khan, the regional head of research for Africa at Standard Chartered Bank in London, the rand ought to maintain its current level, which was around R9,50/US for the first few weeks of 2009. ABM Amro SA trader, Paul Peter said the rand was likely to trend weaker over the next few months. “We aren’t going to see the sort of foreign inflows we have grown accustomed to in the past five to eight years,” he said.
Factors that might influence the movement of the rand in 2009 include the current account deficit, the upcoming elections, inflation data and the Reserve Bank’s interest rate decisions. Aggressive rate cuts could hurt the rand, warned RMB, but according to Moody’s Economy.com, they are needed to revive spending and investment. The possibility of Tito Mboweni stepping down as Reserve Bank governor could also pose a risk for the rand. Commenting on the Zimbabwe situation, RMB said only an outright civil war or a new government there could impact on the rand.
Impact on agriculture
No matter what the rand does in 2009, it will have a direct impact on agricultural production and agribusiness. So says Dr John Purchase, CEO of the Agricultural Business Chamber (ABC). “Uncertainty around the volatility of the rand is hurting investor confidence and this creates big problems,” Dr Purchase said.
Although a weaker rand can help exports, the recession in some parts of the world can make exporting more difficult, as people are cutting back on spending on imported goods, he said. Some countries have also started to cut South African exports to their shores. A weaker rand makes imports more expensive, which can lead to higher inflation. “And then we can forget about lower interest rates,” Dr Purchase predicted.
Farmers should be aware of the risk that comes with a volatile currency and shouldn’t expose themselves to this risk unnecessarily, he warned. “The rand can move in any direction, but there are mechanisms to hedge against movements in the currency,” he explained. He added that the impact can be severe, so farmers must be careful how they manage these risks. – Drieka Burger
