Daniel Motinga, Senior Manager: Research and Development, at First National Bank (FNB) Namibia, in a statement to the media, has
commented on the state of the weak Rand (ZAR) and the possible impact it might have
on the Namibian economy.
(Image: Daniel Motinga, Senior Manager: Research & Development, FNB Namibia)
“The Rand and by implication the NAD (Namibia Dollar), is by
nature one of the most volatile currencies in the world. What is clearly
worsening the situation since May of 2013 is the pending recovery of the US and
other mature economies which implies a greater flow away of funds from emerging
markets such as South Africa, as real interest rates increase abroad. The impact on the
Namibian economy is essentially through the Balance of Payments to the extent
that our exports coincide with the weakening cycle. It is not a given that this
coincidence of the timing of the weak Rand/NAD and exports will take place. In theory, we expect exporters to benefit and importers to pay a bit more during
the weakening exchange rate cycle.” Said, Motinga.
He further advised that during this current crisis, importers lock-in the Rand, or should have done it earlier already, to minimise losses, while
exporters will probably make a bit more money due to the exchange rate. “Obviously
a key advantage in theory is that local goods exported to foreign
markets become cheaper and therefore repatriated earnings are higher in local
currency terms. However, the flip side of this advantage is that imports priced in US$ become pricier and could in some instances erode the benefit
of depreciation and thus could lead to higher inflation.”
With
regard to the future outlook, Motinga added that the core view remains that the exchange rate against some of the key cross currencies such as the US$, will remain
undervalued by between 10-15% and is likely to strengthen towards year-end
from the current levels. He mentioned that in the interim there are structural
risks which could see the exchange weaken to NAD12:US$ but he thought that it
would subsequently revert back to around NAD10.20:US$.
Motinga
said that with regards to consumers he felt that the biggest risk to the
consumer could come in the form of the interest rate environment if the central bank (Bank of Namibia) raises interest because of further exchange rate blowouts. “A key issue, from an
inflationary point of view is also what would happen to the price of crude oil as
it is a key driver of production cost and thus holds the risk of inflation. In our
view we do not see a significant strengthening in the global oil price linked to
demand risk associated with the Chinese growth trajectory as well as the fact
that global economic recovery is still in its early days. In summary, we think the
impact on inflation will be limited during this phase of the currency
depreciation.”
Lastly, he advised that the Namibia economy will be slightly under pressure because the
primary mandate of the SARB (South African Reserve Bank) is to control price stability, and if significant risk is apparent on inflation expectations' front, the SARB could hike interest
rates prematurely. “A hike in interest rates for this year is however, not our core
view. We think the calculus of weak growth and weakening domestic demand in the South African macro environment will override inflation concerns in the interim. However, a significant weakening in the exchange rate driven in part by a sudden stop in
foreign capital flows in favour of South Africa, would almost certainly call for a rate
hike.”
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