Rand Declines on Possibility of Blackouts

The major currency of South Africa, Rand has declined on today, thereby extending the worst slide among all the emerging market currencies in 2013. The investors are afraid that the forced power blackouts by Eskom Holdings SOC Ltd. should cause harm to the output of the biggest economy of the African continent.

Rand declined by 0.8% and is currently priced at 9.2490 per USD. In 2013, so far, Rand has tumbled by 8.5%. On the other hand, the yields on the benchmark 10.5% bonds which are due in December, 2026 increased by 4 basis points; it is currently at 7.44%.

Eskom which is a state owned electricity company is currently pretty concerned on the coal supplies and its reserve power margin, according to the reports published by the Beeld newspaper. The report cites Hilary Joffe, the spokeswoman of Eskom. Most of the economists feel that on tomorrow’s meeting, the benchmark repo rate will be kept unchanged by the Central Bank of South Africa officials. Investors are also pretty concerned over the debt crisis in Europe as it is expected to dampen demand for assets which the investors think of as riskier.

According to the currency strategist of Rand Merchant Bank, John Cairns, the biggest worry for the investors is that the country will face blackouts yet again as Eskom has a very tight capacity at this point of time.

Incidentally, in first quarter of 2008, Rand experienced a decline of 15% against USD, mainly because of coal shortages and maintenance work at the power plants. The country experienced huge blackouts at that point of time as well.

According to the Analyst of Nomura International, Peter Attard Montalto, the blackouts will be rolled right on this quarter and may continue till end of next year. Incidentally, because of the strikes at several mines owned by the 2nd biggest coal producer of South Africa, Exxaro Resources Ltd., the situation is expected to get to a worse level only. Rand may actually go down to as low as 9.95 per USD, as far as analysis of Montalto is concerned.

Duncan Howes, the Currency Trader of Absa Group Ltd., stated that investors are focusing on Cyprus and a bit of selloff of the emerging market assets have already been experienced, with Rand tracking the same. A lot may depend on the statement of the Monetary Policy Committee.