Pretoria – Despite recent improvements, the rand’s real effective exchange rate is still 9% below its average over the past 15 years.
This is according to the South African Reserve Bank’s (Sarb's) quarterly bulletin, which was released on Friday. Head of research Dr Johan van den Heever presented some of the observations in the third quarter, one of these being the rand’s gains.
“Towards last year, there were big declines. Confidence was really very fragile. But since then there has been recovery,” said Van den Heever.
The nominal exchange rate improved and the real effective exchange rate, which is adjusted for inflation abroad and in South Africa, is back to levels as at mid-2015.
Effectively from January to September, the real effective exchange rate increased 17%. However, this has impacted the competitiveness of local producers in foreign markets, according to the report.
READ: Exports down more than 25% for third quarter – StatsSA
This was seen in the drop in net exports reported for the third quarter by Statistics South Africa. This further contributed to the widening of the current account deficit to 4.1%, as the strengthening of the rand impacted export earnings.
READ: SA current-account gap widens as exports fall
Following the events in December 2015, where former finance minister Nhlanhla Nene was fired by President Jacob Zuma, the rand recovered “significantly” in the first half of 2016.
After Brexit, the rand appreciated against the British pound, with a cumulative gain of 38% from the end of December 2015 to the end of October 2016.
However, with the National Prosecuting Authority pressing charges against Finance Minister Pravin Gordhan, and the political uncertainty which developed after that, markets were negatively affected. The nominal effective exchange rate weakened by 2.1% in August.
ALSO READ: Rand may end 2016 stronger than it started - Kganyago
The rand made a recovery of 3.2% in September. Expectations of low to negative interest rates in advanced economies led international investors to look to emerging economies.
The merger of SABMiller and Anheuser-Busch InBev is also one such example where capital inflows were anticipated.
Once again political tensions in October knocked the rand. The currency depreciated briefly following the US presidential elections outcome, but has since appreciated.
The rand was trading at R13.70 to the dollar at 12:25.
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