IT'S no bad thing to risk making predictions when the financial world is in total chaos, as it is now. No one can criticise mistakes, because everyone has been horribly wrong over the past six months.
Even so far wrong that they destroyed 150-year-old banks like Lehman. In fact, the best thing for the whole financial forecasting profession, if something like that existed, would be to hide its head in the sand like an ostrich.
Nevertheless, it is necessary to make guesses or estimates or forecasts, call them what you will, from time to time, especially now that new budgets have to be set up for 2009. So here are a few of mine.
Prediction 1: Rand down to R14/$
The average rand-US dollar exchange rate for 2009 will be about R14 per dollar, versus the present R11.20/$. That's a further weakening of about 20% against the US currency. However, against the euro the rand will only weaken to something like R15-R16 per euro, not much weaker than the present R13.80.
The cross-rate implication of this prediction is that the euro will trade weaker in 2009 at €110 to €1.20 against the dollar.
The rand will weaken to R18-R19 to sterling. That's also not much weaker than the present R17.20 per pound. This means that sterling will weaken to about $1.40 next year. Just a little while ago, £1 could buy $2.15. At that stage, the British felt wealthy.
These predictions mean that the trade-weighted value of the rand will not fall by more than about 5%-10% over the next few months. That's much less than the 22% fall in NEER, the nominal effective exchange rate, over the past few months.
The euro carries a weight of 36.38% in the basket of 13 currencies used to calculated the nominal exchange rate. The dollar, with a weight of 15.47%, is only a shade more important than sterling's 15.37%. The yen carries a weight of 10.43%.
The powerful run by the dollar over the past three months brought the value of the rand down by nearly 35% against this currency. But the euro and sterling were also weak, and this made up partly for the fall in the value of the rand against the dollar.
The net result was that the weighted value of the rand in the NEER index (2000 = 100) fell from 66.87 at the end of July to the present 52.57. That's a fall of 22% and a more accurate indication of how much the value of the rand in fact fell. It's still a lot.
These predictions of the various rates mean that I expect the NEER for 2009 to be on average about 5%-10% less than the current 52.57. Final prediction: the NEER (conveniently available on the Reserve Bank's website every day) will not fall below 45 in 2009.
Prediction 2: SA interest rates to stay high
The old rule-of-thumb ratio is that the local lending rate, the prime overdraft interest rate, must rise by at least one percentage point for every 10% weakening in the value of the rand.
This would mean that the recent fall of at least 20% in the SA currency's value would require the prime lending rate to increase from the present 15.5% to at least 17.5%, perhaps 18%.
That won't happen. But you can also forget about the old promised two-percentage-point fall in the Bank rate and therefore the prime rate in February 2009 on the strength of the new, lower inflationary calculation.
That won?t happen either. The average prime rate for 2009 will be 15%. It's kicking off at 15.5%, which means that a small 1% fall is possible towards the middle of 2009. Forget about all the estate agents' predictions that property prices will rise, because interest rates will fall a long way next year.
Prediction 3: Petrol cheaper than R10/litre
Another variable that affects each of us every day is the fuel price. The prices of both petrol and diesel are now just below R10 per itre. This should remain so for 2009.
The present low price of crude oil at $60 gives a value of about R700/barrel at the current exchange rate of R11.20/$. At its worst, oil was $147/barrel and the rand-dollar rate about R7/$. Crude oil then cost more than R1 000/barrel.
Only favourable economic news, like sudden recovery of world growth, could push the oil price up now. Such an event would also boost commodity prices, and therefore also the rand exchange rate. The one will make up for the other, and your petrol bill for 2009 shouldn't be any more than it was in 2008.
- Fin24.com