Johannesburg - Reserve Bank governor Tito Mboweni and finance minister
Trevor Manuel were right to want a stable and stronger rand as this might
change the mindset of South Africans who had become used to a weak currency,
Martin Jankelowitz, the head of market and economic research at Investment
Solutions, said yesterday.
"The rand needs to be removed as the fulcrum of economic policy, investment
returns, sentiment, company profitability and business planning," he said.
Many domestic companies had become lazy and inefficient after experiencing
14 consecutive years of depreciation in the rand and needed to become more
competitive without relying on a weaker exchange rate, he said.
The FTSE/JSE Africa all share index had become completely dependant on
movements in the rand since the fourth quarter of 2001, when the rand
experienced its worst quarter yet against the dollar. About 70 percent of
the earnings of companies on the FTSE/JSE Africa Top40 index are generated
offshore.
"In my opinion Mboweni and Manuel are doing the right thing in trying to
break the mindset that the rand will always depreciate."
Mboweni has been especially vocal on the rand's 40 percent appreciation
against the dollar last year and gains of more than 15 percent this year,
much to the dismay of many economists. They do not feel the governor should
talk up the local unit, especially after keeping quiet in 2001.
But Jankelowitz felt the authorities were being pushed into a difficult
situation where they were criticised for keeping mum and then slammed for
speaking.
Mboweni said the rand was in recovery mode and "not strong yet" when it was
trading at about R7.52 a dollar last week.
The rand swung in a range of R7.3915 to R7.5305 a dollar yesterday to last
trade at R7.4450 from R7.4704 the previous day.
Bonds were also firmer after the release of data that showed money supply,
which leads inflation by about 12 months, had moderated while demand for
credit also showed signs of slowing, improving the case for another interest
rate cut next month.
The yield on the R150 moved in a range of 8.81 percent to 8.9 percent, its
previous close and was at8.87 percent shortly after 6pm. The yield on the
R153 was last at 9 percent from 9.06 percent.
The stronger rand makes it likely the Reserve Bank will fall into its target
band of between 3 percent and 6 percent for CPIX (consumer inflation less
mortgage rates) by the end of this year and will average 4.5 percent next
year.
A low inflationary environment takes pressure off the poor while creating an
atmosphere for sustainable, long-term economic growth. In the short term
this may create some pain as the stronger rand, combined with a stalling
world economy, has ruptured domestic economic growth.
The manufacturing sector has especially suffered and highlights the need for
the Reserve Bank to aggressively cut interest rates.
The seasonally adjusted Investec purchasing managers index, which had
plunged from 47.9 to 45.4 in May, was unchanged in June. It was the third
consecutive reading below the critical level of 50.
"This confirms that the manufacturing sector contracted further during the
second quarter and is now technically in recession," said André Roux , the
head of fixed income at Investec Asset Management.
The global economic recovery would happen slowly and, given the weak dollar,
a relatively strong rand may persist. The six month expectations of
respondents had improved notably.
Source: Vernon Wessels
Analyst backs Manuel and Mboweni's stance on rand July 2, 2003.
Posted On Thursday, 03 July 2003 02:00 Published by eProperty News
Reserve Bank governor Tito Mboweni and finance minister Trevor Manuel were right to want a stable and stronger rand as this might change the mindset of South Africans who had become used to a weak currency.
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