Rand Devalues and Political Instability Continues

Rand was in typically volatile form throughout the week, managing to lose close to 15 % over Wednesday night. This fall dropped the currency to its worst level since April 2002 and was the worst daily loss since the dual exchange rate system was abandoned in March of 1995. Rand has managed to gain some composure since but is trading above the 10 in the cross with USD.

South Africa has a large current account deficit so is therefore seen as a riskier proposition. As investors have grown increasingly worried about global prospects, they have retreated from high yielding and riskier currencies such as the Rand and have run for the hills to safer propositions such as Yen and dollar.

The recent depreciation of the Rand mean that petrol prices in the Republic will continue to stay at their current high levels, even though most commodity and precious metals are losing value as the global crisis spreads. This is a double blow for the Rand.

The continued political infighting has developed further over the weekend, with former Defence Minister and ANC chair Mosiuoa Lekota announcing plans to hold a National Convention in early November to gauge support for his breakaway political party. This has lead to rumours of a snap election from the ruling party to quell the uprising, before it gathers any more momentum.

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