Dawie Roodt on why the rand won't tank to R20/$ | Fin24
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Dawie Roodt on why the rand won't tank to R20/$

Oct 11 2016 15:54
Gareth van Zyl, Fin24

Johannesburg - The rand is unlikely to weaken to historic lows despite charges being brought against Minister of Finance Pravin Gordhan, says economist Dawie Roodt.

National Prosecuting Authority (NPA) head Shaun Abrahams announced on Tuesday that Gordhan has been ordered to appear before court on a charge related to the early retirement of former deputy commissioner Ivan Pillay. Gordhan is expected to appear in court on November 2.

The summons comes after Gordhan was instructed to report to the Hawks in August regarding investigations into the Sars rogue unit.

The NPA’s announcement came after Gordhan was instructed to report to the Hawks in August regarding investigations into the so-called Sars rogue unit.

READ: LIVE - Gordhan charges are a pretext to stop him fighting corruption - SACP

Amid the announcement, the rand weakened by over 3% on Tuesday morning to touch R14.28 to the US dollar. By late afternoon the rand was 3.43% lower at R14.27 to the dollar.

Roodt, however, told Fin24 that he doesn’t foresee the rand weakening even to the R18 mark - a level it last touched in January this year.

“The rand went to R18 to the dollar at a previous time, but that was in an exceptionally thin market. That was a market where liquidity was a big issue,” Roodt told Fin24.

"I will be surprised if it goes to R18 again. Things really have to go pear shaped before it goes to R18. My gut feeling is that we're probably going to see something maybe like R15.60 or so and then gradually coming back.

"So firing Pravin Gordhan is not going to lead to R20 to the dollar as some analysts are suggesting,” Roodt said.

Reasons for the rand not possibly weakening dramatically mainly centre on the currency’s already weak levels, he added.

Roodt explained that the rand was already undervalued before Tuesday’s events and that the NPA’s announcement could create a buying opportunity for foreigners.

"The rand is very weak already and the weaker a currency, the more difficult it is to push that currency even weaker,” Roodt told Fin24.

Another reason why the rand may not weaken dramatically is South Africa’s attractive bond market.

"We offer 9%, which is very very liquid, very well regulated and very much integrated with the rest of the world,” Roodt told Fin24.

However, a weak rand over a long period of time could have a detrimental impact on the economy, he added.

"The longer the currency remains at unrealistically weak levels, the more that level becomes the correct level,” Roodt said.

“So, eventually things like inflation will catch up, making a weak level the correct level for the currency. And eventually, it will become part of the fundamentals - that's the danger,” said Roodt.

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