THE weakening of the South African rand is a major talking point at the moment. The Namibia dollar is linked to the rand on a one on one basis. Among those who have expressed their views on the rand and its possible effects on the economy is Daniel Motinga, Senior Manager of Research and Development at FNB Namibia . In a statement to the media, he has commented on the state of the weak rand and the possible impact it might have on Namibia and its economy. "The rand, and by implications, the Namibia dollar is by nature one of the most volatile currencies in the world. What is clearly worsening this scenario since May 2013 is the pending recovery in the US and other mature economies, which implies a greater flow of funds away from emerging markets such as SA as real interest rates increase abroad. The impact on the Namibian economy is essentially through the balance of payments to the extent that our exports coincide with weakening cycle. It is not a given that this coincidence of the timing of the weak rand/ Namibia dollar and exports will take place. So, in theory, we expect exporters to benefit and importers to pay a bit more during the weakening exchange rate cycle," Motinga said. He advised that during this current crisis importers should lock in the rand or rather should have done it earlier already, to minimise losses, while exporters will probably make a bit more money due to the exchange rate. "Obviously a key advantage in theory is that local goods that are exported to foreign markets becomes cheaper and therefore repatriated earnings are higher in local currency terms. However, the flip side of this advantage is that imports that are priced in US dollars become pricier and could in some instances erode the benefit of depreciation and thus could lead to higher inflation," Motinga said. With regard to the future outlook Motinga added that their core view was that the exchange rate against some of the key crosses such as the US dollar would remain undervalued by between 10% to 15% and was likely to strengthen towards year end from the current levels. He said in the interim there were structural risks that could see the exchange weaken to N$12 per US dollar but he thought that it would subsequently revert to around 10,20 to the dollar. BIGGEST RISK Motinga said that with regard to the consumers he felt that the biggest risk to the consumer could come from the interest rate environment if the central bank would raise interest because of further exchange rate blowouts. "A key issue, from an inflationary point of view is also what would happen to the crude oil price as it is a key driver of production cost and thus holds risk for inflation. In our view we do not see significant strengthening in the global oil price linked to demand risk associated with the Chinese growth trajectory as well as the fact that the global recovery is still in its early days. So in summary we think the impact on inflation will be limited during this phase of the currency depreciation." He said the Namibia economy would be a bit under pressure as the primary mandate of the South African Reserve Bank is to control price stability and if they saw significant risk on the inflation expectations front they could hike interest rates prematurely. "A hike in interest rates for this year is, however, not our core view. We think the calculus of weak growth and weakening domestic demand in the SA macro environment should override inflation concerns in the interim. However, a significant weakening in the exchange rate driven in part by a sudden stop in foreign capital flows in favour of SA would almost certainly call for a rate hike," Motinga.
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