South African currency hits record lows

By Editorial Board - 25 August 2015 at 12:00 pm

JOHANNESBURG (AP) — The prospects of rising interest rates in the United States, coupled with a downturn in the Chinese economy contributed to the South African currency’s record drop on Monday, said economists.

The South African rand plunged to 14 rand to the dollar before recovering slightly to 13 rand as trade closed on the Johannesburg Stock Exchange.

The rand was the worst affected among 25 other emerging market currencies, buckling under China’s currency devaluation, reported Business Day, a financial newspaper. In the United States, the Dow Jones industrial average lost more than 1,000 points as trade began on Wall Street.

Since the beginning of the year, the rand has lost 15 percent against the dollar and is further weakened by a number of domestic factors, said economist Richard Downing. A rudderless economic policy, labor strikes, frequent electricity blackouts and a neglected manufacturing sector make the South African rand vulnerable to international currency fluctuations, he said.

“We need clarity on a fiscal policy,” said Downing, adding that South African policy makers must do more to regain the faith of international investors. “It’s not promoting confidence in the South African economy.”

As some investors turned to more solid stocks, the price of gold increased but it was not enough to rally the currency, said Downing.

Known for its gold and other precious metals, South Africa is particularly susceptible to currency swings as a commodities exporter, said economist Mike Schussler.

Last week, the rand weakened to 13 rand to $1 — reaching lows last seen in 2001 — recovering slightly as the week ended, only to fall again on Monday.

For decades, the rand was on par with the dollar, beginning to weaken as political transition in the country sparked investor fears in the late 1980s, according to Federal Reserve records.

LYNSEY CHUTEL, Associated Press

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Editorial Board

Editorial Board

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