Volatile rand has Namibia mulling end to 25-year currency peg | Fin24
 
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Volatile rand has Namibia mulling end to 25-year currency peg

Dec 21 2018 20:45
Ben Bartenstein, Bloomberg

Namibia is growing tired of the economic pain caused by the volatile rand and is considering ending a 25-year-old peg to the SA currency.

The government in Windhoek is weighing options to amend the currency arrangement or forge a new path for the Namibian dollar, Finance Minister Calle Schlettwein said in an interview in New York.

A change isn't imminent as the nation seeks to emerge from its first recession in 14 years, but as the economy recovers integration with South Africa, including customs agreements, has to be reassessed. "The whole basket has to be re-evaluated," he said.

Namibia, with a population of just 2.6 million people, introduced its own currency in 1993, pegged at parity to the rand, three years after gaining independence from South Africa. Regional neighbours Lesotho and Eswatini, formerly known as Swaziland, have a similar arrangement. The three nations, together with Botswana, also operate a customs-sharing pool with South Africa.

The rand is the fifth-worst performing emerging-market currency against the dollar this year, weakening more than 14% as it is buffeted by trade tensions between the US and China, South Africa's biggest trading partner. The currency posted a low of R15.6958/$ and a high of R11.5078/$ in 2018.

More volatility appears in store for 2019, with a South African election in May adding to local risks. The cost of hedging in the options market against price swings in the currency over the next year has climbed almost 500 basis points since April, well above the five-year average.

The rand was at R14.4342/$ on Friday afternoon, with Bloomberg-compiled forecasts for its end-2019 level ranging from R12.60/$ to R16.50/$.

namibia  |  rand  |  africa economy
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