Africa-Press – Eswatini. Economists have warned of tough times ahead as the South African Rand set a record closing low against the Unitd States Dollar on Friday.
According to reports, the rand recovered from its weakest level ever of R19.51 to the dollar hit on Friday but set a record closing low of R19.33. Yesterday the Rand was at R19.45 to the dollar.
Lilangeni is pegged to the Rand and this means whatever happens to the rand the local currency is also affected. According to economists, Emaswati must brace themselves for tough times. This is because this might result in more interest rate hikes, food, transport and electronics price hikes.
Independent Economist Thembinkosi Dube said this development would further drive inflation on the high side as the country imports some commodities on foreign currency. He said an example is the import on fuel. “Past experiences have indicated that currency depreciation fuels the price of fuel.
This is what the ministry of natural resources use to justify their fuel hike. The hike in fuel costs increases production costs which are then transferred to the consumer final product,” Dube explained. He said the country was more likely to see a hike in food prices and transport costs.
“We are also more likely to see a hike in prices of all imports that are outside the SACU region, this includes electronics (TVs, cellphones, etc), and the price of cars will further rise.
This hike affects consumer expenditure which will slow down economic activity,” he stated. Adding, Dube said the situation was more likely to see the Central Bank further increasing interest rates as a way to curb inflation.
He said this will make life difficult for loan holders who will have to fork out more for their monthly instalments. Dube said the economy was being pushed into a recession. However there is a silver lining at the end as Dube said on the other hand, the good would be on exporters who will get more pay for their commodities.
“As Emaswati, we cannot be cool or unworried, we are worried. We need to learn to live in these difficult times by spending on what we need, and buying what is necessary.
“We must avoid loans,” Dube warned.
Another economist who preferred not to be named concurred with Dube and said indeed the rand depreciated notably recently mainly on three factors. He said these include continuous strength of the US Dollar in general due to higher interest rates and South Africa’s domestic energy problems which are weighing on growth prospects.
“Then most recently there was the accusation that South Africa was or has supported Russia by the US ambassador which triggered an outflow of funds,” the economist said.
He explained that what this meant for the country, was that the lilangeni is pegged to the rand so the two move together with the random 1:1 basis. He said a weaker exchange rate makes imported commodities outside South Africa to be very expensive.
“For example international oil price of US$100 was E1 700 per barrel when exchange rate is $1:17 but at one is to 19 that becomes E1 900 so higher oil prices makes domestic fuel prices to go up and since all goods rely on transportation all other commodities will see their prices go up thereby consumer income gets eroded as cost of living will generally rise,” the economist explained.
He said if the central banks respond by raising interest rates there will be more challenges on indebtedness and servicing of debts.
He said a weak exchange rate on the positive side supports earnings on exported commodities outside the South African (SACU) market.
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