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Good news assault on sickly rand
Mariam Isa
Posted Wed, 09 Jan 2002
The government flung a barrage of positive news on privatisation, debt, and monetary policy at domestic markets on Tuesday in what was seen as a carefully-crafted bid to stabilise the volatile rand.
Analysts welcomed the steps, which included the sale of the government's 20 percent stake in mobile telephone operator M-Cell, but said there was limited scope for further recovery in the currency after it lost 40% of its value in 2001.
News of the long-awaited sale of the M-Cell stake — which was delayed from last year due to poor global market conditions — was seen as a key sign of the government's determination to push ahead with privatisation.
South Africa's Treasury pointed out that the US$475-million sale would significantly boost its revenues during the current fiscal year and allow it to buy back another R15-billion (US$1.29 billion) of domestic debt, taking this year's total buyback to 22-billion.
At the same time, the Reserve Bank of South Africa unveiled a timetable for its monetary policy committee meetings for the year and details of its restructured monetary policy committee, clearing up uncertainty over the market-sensitive issues.
"It seems like a concerted effort to get a lot of good news on the rand out at once," Standard Chartered economist Razia Khan in London said.
"Even though the privatisation is small, the fact that it comes early in the year is a good signal in terms of the government's intentions and should be rand positive."
Lack of hard currency inflows has been one of the factors that weighed heavily on the rand late last year, after the government postponed its planned sale of the M-Cell stake and an initial public offering in telecoms operator Telkom.
Those two deals would have formed the bulk of 18 billion rands worth of privatisation inflows budgeted for in 2001/02.
SCOPE FOR FURTHER RAND GAINS LIMITED
The rand has firmed by 16% against the dollar since hitting a historic low of 13.85 on December 21.
On Tuesday, it briefly gained another 30 cents against the US unit to touch 11.37 as speculation swirled that a sale of the M-Cell stake held by transport utility Transnet was imminent. At 16h10, it was back at 11.59 against the dollar.
"I think the capacity for further significant gains is limited, but the news will probably help the rand to stabilise," Standard Bank economist Goolam Ballim said.
"Ultimately a stronger outlook for the rand would depend on growth — forecasts of two or 2.5% annual growth are not alluring in comparisons to other emerging economies."
But Ballim said the timing of the official announcement was perfect in terms of sustaining a turnaround in the currency's poor fortunes, seen as unwarranted by South Africa's economic fundamentals.
Barclays Treasury head in Johannesburg, Andy Horne, sees the the rand trading between 11.00 and 12.50 against the dollar in the near-term — still a far cry from its level of 10 to the dollar late in November.
Meanwhile, a spokesman for President Thabo Mbeki said Mbeki had decided to set up a commission of inquiry into the rand's sudden sharp slide. The step follows a plea by the South African Chamber of Business (SACOB) which alleged manipulation in the rand's sharp slide late last year.
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