The rand fell to a more than one-week low, nearing R17/$ on Tuesday, after data showed that SA’s economic collapse in the second quarter was worse than feared.
GDP in the second quarter fell at an annualised rate of 51%, the worst on record, while the quarter-on-quarter fall came in at 16.4%.
Analysts said, however, with what is likely to be the worst economic fallout from Covid-19 behind SA, the rand’s future direction now hinges on the government’s intentions to grapple with a ballooning budget deficit.
“I was expecting a bad number, and we were expecting volatility around that number coming out,” said TreasuryONE director Andre Cilliers, “but I think the worst is over”.
“A further shock could be in the medium-term budget in October and the figures around revenue collection,” he said, adding that the numbers are unlikely to push the Reserve Bank into lowering rates further. Monetary policy alone cannot be used to get SA’s economy back on track, he said.
“I think we may have flattened out on interest-rate cuts and the Reserve Bank will more than likely wait and see how the government does on the fiscal side in getting the economy back on track,” said Cilliers.
In global risk-off trade the rand fell the most in a week, as an expected recovery in global tech stocks failed to materialise and US President Donald Trump again rattled his sabre at China over trade.
At 3.35pm, the rand had weakened 1.44% to R16.9692/$. It had weakened 1.25% to R19.9601/€ and 0.41% to R22.0919/£. The euro fell 0.28% to $1.1784.
At the same time, the Brazilian real had fallen 1.72%/$ and the Mexican Peso 1.24%/$, while the Turkish lira fell to its lowest level against the dollar on record.
The rand’s fall on the day interrupted a period of relative strength in the currency, which has led gains by emerging-market currencies in the past five months.
The impact of the coronavirus pandemic and SA’s severe lockdown, one of the world’s harshest, were writ large in an economy already in recession ahead of the crisis, with the latest figures completing four consecutive quarters of decline.
“After starting the day already slightly weaker, the rand came under further pressure this afternoon following the announcement that GDP had plummeted during the second quarter, mostly due to the lockdown, and the implications that this had on economic activity,” Peregrine Treasury Solutions executive director Bianca Botes said.
“It is important, however, to note that SA has already been in a recession after facing three consecutive quarters of economic contraction. This now implies that we have seen a full year of economic decline.”
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