SOUTH Africa’s Finance minister Pravin Gordhan has expressed confidence that the rand has been oversold and will recover after its shock drop on Friday to below R10,20 to the dollar.
By Business Times
“We are very confident that the rand will recover in time, that the markets have overreached themselves,” he said in an interview from Marrakesh, in Morocco, where he was attending the annual meeting of the African Development Bank.
“Exporters in South Africa should use the opportunity provided by a weaker rand to increase exports,” he said.
Concerns over looming labour conflict on the mines, following the announcement by the National Union of Mineworkers (NUM) that it wanted a 60% wage increase for certain workers, have spooked investors.
The slide in the rand this week from around R9,61/$ to R10,20/$ suggested that investors were pricing in the potential that production would be disrupted, which would affect mineral exports and harm the rand.
The rand broke through R10/$ for the first time in four years on Thursday after a briefing on the economy by President Jacob Zuma.
But Gordhan defended his boss.
“The weakness of the currency has nothing to do with the statement made by President Zuma who was reassuring the public that, as the government, we understand the importance of the mining sector,” he said.
“We are not going to allow it to go into decline.
“We have to work collaboratively to stabilise the mining sector,” Gordhan said.
Zuma announced that Deputy President Kgalema Motlanthe and Gordhan would join Mineral Resources minister Susan Shabangu and Labour minister Mildred Oliphant in talks to stop mines descending into chaos as the “strike season” loomed.
Bheki Sibiya, the chief executive officer of the Chamber of Mines, on Friday expressed satisfaction with the initiative, saying that Gordhan had demonstrated “a sense of mission and a sense of urgency”.
Sibiya said the chamber would enter into “pre-collective bargaining” talks with the NUM, and hoped to do the same with the rival Association of Mineworkers and Construction Union.
Gordhan said that the disappointing growth of 0,9% recorded for the first quarter would improve over the next three quarters.
“We still have three quarters in the year to intensify our efforts to boost growth.”
While South Africa had to sort out its problems in the mining sector, there were also substantial global factors influencing the weakness of the rand, including “the possibility that the quantitative easing, particularly from the US, will be slowing down and markets are beginning to factor some of that in”.
This, coupled with the US economy showing “resilience”, contributed to the strength of the US dollar, Gordhan argued.
— Business Times