Rand Gains as Current Account Deficit Stays Unchanged

The major currency of South Africa, Rand has got to the strongest level within the last 3 weeks, thereby erasing the earlier decline. South Africa’s deficit for current account remained the same in the 3rd fiscal quarter and that helped Rand to gain further. Rand has increased by 0.5% against USD and is currently priced at 8.7292 per USD. This is the strongest value of Rand against USD, since 12th November. Thereby, Rand has gained for 4 straight days. The yields on the South African benchmark 10.5% bonds due by December, 2026 however have experienced a drop of 8 basis points. It is now at 7.44%, its lowest value since 28th September.

The current account gap is a country’s measure of trade in services and goods. It was unchanged for South Africa at 6.4% of the gross domestic product. The results were announced by the South African Reserve Bank through a Quarterly Bulletin. Incidentally, economists predicted a 6.7% deficit in the 3rd quarter and the results were actually better. The benchmark rate of South Africa has been kept at 5%, as announced by the Central Bank.

According to Mohammed Nalla, who heads the strategic research department of Nedbank Group Ltd., the investors expected that a significant extension will happen as far as the current account deficit is concerned. However, as that didn’t happen, they were surprised and hence Rand grew stronger. However, he added that the currency remains biased towards possible weakness and it is still under risks.

Incidentally, the mining strikes held at the shafts owned by Lonmin Plc and AngloGold Ashanti Ltd. lowered the overall production and this resulted into widening of the trade gap of South Africa. The imports have climbed up for this African country as well. However, as the vehicle and farming exports increased, it, to some extent, cushioned the impact of the mining strikes being held in the last quarter. Hence, the pressure due to the shortfall of current account somehow eased down.

The Rand was able to hold to its gains as the European Central Bank (ECB) kept the benchmark interest rate at a record low value of 0.75%. The President of ECB, Mario Draghi stated that this was done in an attempt to boost the growth of this region and this decision was predicted by most of the renowned European financial analysts.