The rand, along with other emerging markets, has also been hit by risk aversion, amid uncertainty about a US recession, cooler growth in China and the ongoing Ukraine war.
"In a risk-off environment [where investors tend to avoid risky assets], South Africa should offer a higher risk premium return on the rand, not a lower one, in order to keep the rand stable, but the erosion of the differential between SA and US rates has lowered the risk premium instead," added Bishop.
The rand weakness will add to hot inflation in South Africa, as the country imports most of its fuel, and key crops like maize and wheat are priced according to import and export parity . In addition, government's fiscal position is taking strain, which will weigh on the rand. For the past financial year, Treasury was expecting a primary budget surplus of R6.7 billion –Over the past two years, government tax income has been bolstered by mining companies which earned super-profits during a commodity price rally.
However, this is falling away, warns Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management.shows that government may be set for large budget deficits, if the mining sector is an indication.In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
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