The rand has recently strengthened extraordinarily against our weak economic conditions. The strength points to changes on the political front which are more promising for South Africa’s future. Investors like certainty. By weeding out corruption and presenting confident and well intentioned leadership our economy will open up to foreign investment which leads to a stronger currency.
However, crazy as it seems, the rand shouldn’t get too strong and needs to find a level somewhere in between strong and weak. It’s a Goldilocks currency which shouldn’t be too hot or too cold but just right. Let’s explore some of the effects.
Why we want a strong rand?
The good news is that the pump price of petrol will fall on Wednesday by 43c. This is as a result of the rand’s surprising strength of late, trading under R12 to the US$.
Essentially, we are dependent on the oil price which is quoted in US$ and the exchange rate of those dollars to the rand at the time we purchase the oil. The cost affects many industries in the country that particularly rely on vehicles to transport their goods and services. Therefore, these costs are directly affected improving the value of rand’s purchasing power into the future (inflation).
Unfortunately, prices go up very quickly when the oil price goes up but somehow they don’t come down that quickly when the rand falls.
Why we want a weak rand?
Resources Exports are our life line. Especially resources, as we produce many commodities for world consumption. There is currently a upward tick in the resources cycle as global demand improves. A weaker rand improves the price we get for these exports which has a direct impact on our mines’ profitability, which in turn maintains and creates jobs.
Tourism Tourists find it cheaper to visit us with a weaker rand as their currency goes much further. Tourism creates and maintains employment which in turn adds to the growth our economy.
What can we do?
Economics is one thing and all we can do is work with the things we can control.The rand at these stronger levels will keep interest rates lower, so take advantage of the lower rates by paying off your debts quickly.
If you see an improvement in your disposable income then save it rather than spend. The savings will make you less reliant on debt in the future making it easier to keep up with the cost of living when the rand weakens sometime in the future.