Rand hits a four year low

By Staff Writer

The rand has dropped to a four year low against the dollar today (22 August) after wage talks in the gold sector came to a halt.


According to reports, an impending strike would inflict more damage to the country's economy that is already losing $60 million (R615 million) a day due to the strike by the 30 000 workers in the car manufacturing industry.


According to Rob Spanjaard, director at Rezco Asset Management, the rand is hovering around the R10 to the dollar once more,  due, due to a number of factors including the impact of pending quantitative easing in the United States and better-than-expected retail sales data out of the U.S.


In October 2012, Spanjaard warned that the rand could end up collapsing to more than R10 to the dollar.


The aftermath of the rand’s recent performance
But not all economists feel the rand’s recent performance is an indicator of doom and gloom. Dr Azar Jammine, chief economist at Econometrix, said that following the steep depreciation of the rand over the past year, analysts have been impressed by the subdued extent to which inflation has responded in an upward direction.


“On previous occasions when the rand depreciated sharply, the impact in terms of pushing up inflation has been fairly dramatic. This has not been the case with the depreciation of the currency over the past two years. The difference this time is that the rand has, believe it or not, depreciated much more slowly since it first began doing so in a meaningful way in July 2011. It has taken more than two years for the currency to decline from R6.70 to the Dollar in July 2011, to its current exchange rate around R10. This magnitude of depreciation on earlier occasions outlined above took place in a matter of months,” said Jammine.


The impact of labour demands
Jammine added that there are concerns on the labour front that the fairly aggressive demands by labour for pay increases, might lead to significant wage inflation that gets fed through into higher consumer price inflation.


 “It is, however, not obvious that increased wages will necessarily translate into higher inflation. What really counts here is the extent to which the overall wage bill of companies increases. If substantial wage increases are awarded, but the employment component of such companies decline, then the average increase in the wage bill need not exceed inflation for the company materially and might then not be a source of increased inflationary pressure. In many instances this appears to be the case,” said Jammine.


He added that whether through attrition or active retrenchment, companies are succeeding in restraining the increase in their wage bill which will not necessarily mean an increase prices to compensate.

 

Recent Articles

Featured Changing from one medical scheme to another - effortlessly

It is coming up to the end of the year and you might be looking to change medical schemes, or options within a scheme in preparation for the new year. While you don’t necessarily have to wait for year-end to do so, providers often recommend it.

Read more

Your guide to financially surviving Christmas

There are a few times each year where you need to dig deeper into your pocket and spend more money such as birthdays, anniversaries, and the Christmas period. Whether you celebrate this religious holiday or not, the festive period - depending on how you choose to spend it - means increased travelling, buying of gifts, entertaining, and eating out at restaurants.


Read more

Trump, Trump and a little bit of South Africa

What a November we had, with the rand staging one of its best months and closing below the R14.00 level. To be honest, this looked like quite a far-fetched possibility at one stage during the month. It seems that the tide has changed a little, even though it might be short lived since the US dollar bulls are not so sure of their case anymore.

Read more

Momentum vs. The people: Who is at fault?

This week has seen insurance giant Momentum in the hot seat as debate sparked around its initial refusal of a R2.4 million life insurance pay-out. The deceased was killed in a hijacking but lost the right to claim upon failing to disclose a raised blood sugar condition at the inception of the policy, in 2014. Momentum has since agreed to the pay-out.

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Free iCollege Scholarship

Price: R600
When: Until 16 May 2019
Where: Nationwide

Telkom December Big Deal

Price: R459 pm
When: Until 31 December
Where: Nationwide

Money Savvy Kids Giveaway

Price: R450
When: 8 December
Where: Johannesburg (Milpark)