The Rand fell more than 1,5% to a 14-year low against the US dollar on Friday, 24 July. At its session low, it stood at R12,68 – its weakest point since December 2011.
The weakness was put down to China’s economic slowdown, though governmental debt, weak economic growth, chronic power outages and rising inflation have all been blamed for the current exchange rate.
A weakened currency could hold pros and cons for a country, as exchange rates play a central role in international trade and impact investor relations. Export dominant countries like China, for instance, require a weakened currency in order to maintain the affordability and demand of its goods in foreign markets. EU countries, on the other hand, need a stronger currency in order to maintain their overwhelming import needs and preserve their service-dominant economies. For South Africa, the weak Rand can prove a windfall for our export markets and the mining industry in particular. But of course, the downfall is an import issue which could see price hikes hamper companies trading in the domestic economy.
The Rand weakened despite the Reserve Bank raising interest rates by 25 basis points to 6.0% as part of a ’hiking cycle’. It is yet to be seen what fluctuations will hold for the South African currency and our economy, going forward.
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