Thursday, September 28, 2023

Barclays foreign exchange pundit sees Pula vulnerability on Rand crisis

The outlook for the local currency, the Pula remains largely dependent on theSouth African’s Rand performance, given the crawling peg exchange rate mechanism in which the ZAR accounts for50 percent of the pula basket, research analysts at Barclays Bank Africa have said.

In a research paper shared with African Financial journalists attending the annual data journalism programme at the Rhodes University in Grahamstown, South Africa lead researchers at Barclays Africa, Dumisani Ngwenya and Ridle Markus noted that given an expectation for the South African Rand’s depreciation, there is likelihood of aweakening bias on the Botswana Pula in the months ahead.

At the same time, the Barclays researchers said that the upcoming inclusion of the Chinese Renminbi (RMB) into theSDR basket carries implications for the Pula. The RMB is expected to be added to the SDR basket at the beginning of October this year with a weight of 10.92 percent.

“Although the South African Rand will remain the primary driver. In the rates space, we believe yields are likely toremain anchored into 2017 amid limited supply (auctions occur quarterly in sizes of about BWP1billion, with thenext bond maturity due only in March 2017) and favourable liquidity conditions. The 182- bill yield was at a historiclow of 1.16 percent at the most recent auction, remaining in the red on an inflation-adjusted basis.”, the Barclays executives said.

For the several seven months the world has been watching the South African currency, Rand, become a crisis spectacle. The Rand’s value is reported to have plunged by about 26 percent since June last year. It reached a record low of R17.9950 to a US Dollar earlier this year following a sustained decline. It is also predicted that the Rand will for the rest of this year remain under strain with the likelihood of slipping further down

Figures provided by the Bank of Botswana shows that on an annual basis (twelve months to July 2016), the Pula appreciated against the rand (5.7 percent). During the same period, the local currency depreciated against the dollar (5.1 percent), euro (6.2 percent) and the yen (20.8 percent) but and the pound (12.3 percent).

The Barclays findings follows predictions made earlier this year by some leading macro-economic analyst, Dr Keith Jefferies that the strength of the Pula will ‘slightly’ increase. This was after an adjustment of the rate of crawl by 0.38 per cent.

The Pula basket of currencies currently comprises the South African Rand and the International Monetary Fund (IMF) Special Drawing Rights (SDR) which consists of the US Dollar, Japanese Yen, the Euro and the British Pound Sterling.

During 2015, the weights of the Pula basket of currencies were 50 per cent South African Rand and 50 per cent SDR, with the rate of crawl set at zero per cent per annum.


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