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Moments after the announcement that Nhlanhla Nene had been axed and would be replaced by unknown David “Des” van Rooyen, the rand plummeted and the likelihood is that the economy will follow.
As the rand loiters around R16 to the dollar and at R25 to the pound, the implications for ordinary South Africans are dire as we expect the cost of basic goods to rise, and for interest rates to go up sooner rather than later.
Commentators this week have said that a weaker rand means that the costs of essential imports such as oil and food will rise, resulting in the inflation rate breaking the 6% target range – putting pressure on the Reserve Bank to hike interest rates, possibly as soon as next month.
Lesiba Mothata, chief economist at Investment Solutions, believes that we could see an emergency meeting of the Monetary Policy Committee to hike rates “to stave off currency-inducted inflation”.
Economist Peter Montalto of Nomura International went as far as predicting an interest rate hike of between 50 to 100 basis points next month.
Apart from higher prices and interest rates, ordinary South Africans who are members of pension funds will also be affected by the fall in share prices on the JSE and government bonds.
The financial services sector was especially hard-hit as banks are more vulnerable to steep increases in interest rates, with Standard Bank and FNB falling 17% and 21%, respectively.
With our economy narrowly avoiding a recession in the third quarter of this year, economists now believe that a recession is unavoidable as the economy struggles to adjust to the price shock of the collapsing rand and potentially higher interest rates. – Staff reporter
