South Africa: South African rand plunges in August to lowest level in 14 years
August 20, 2015
In August, the South African rand (ZAR) lost ground against the U.S. dollar, thus continuing a trend that began in mid-2011. The currency reached a 14-year low on 17 August when it traded at 12.87 ZAR per USD. The figure was 4.46% weaker than on the same day in the previous month and 21.3% weaker on an annual basis. The currency has lost more than 11.0% of its value since the beginning of the year. The depreciation of the rand underlines the economic difficulties that the country faces amid electricity supply constraints and feeble government finances.
On 23 July, the Central Bank increased the repo rate from 5.75% to 6.00% on concerns that an upcoming hike by the Fed would trigger further depreciation of the currency. Adding to that, the rand has been particularly vulnerable to the volatility in the Chinese equity markets and falling commodity prices. The slowdown in China coupled with the devaluation of the yuan on 11 August, will likely weigh on demand for South African commodities. Moreover, systematic electricity shortages and a persistent fiscal deficit are also fueling the decline of the currency.
Author: Dirina Mançellari, Senior Economist