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The South African rand rallied to a fresh two-week high against the dollar yesterday, its fifth consecutive day of gains against the greenback yesterday, rising more than 1 percent to a near two-week high of ZAR 13,86 as the market overlooked economic stagnation and the risk of having its credit rating downgraded to junk.As recently as last week‚ the unit traded at R15,59/$.

For Zimbabwe, analysts have warned that it is still early days to shape economic policy on the strengthening trend of the currency as it could reverse the gains as early as next week considering the current economic and political crisis South Africa is facing. Economists said in the short run the effect of the upward movement in the rand may not be felt especially by large corporates and Government.

“It may have an impact on individuals but not large corporates who usually place orders quarterly or bi-annually. Only when the gains are sustained would the effects be felt in the national economy,” said Dr Albert Makochekanwa, an economist from the University of Zimbabwe.

Another economist John Robertson said the firming up of the rand was “quite positive on our part because generally such a trend will make exports to South Africa more competitive”.

“However, there are doubts whether this trend will be there for a long time considering the current problems being faced by South Africa politically and economically. You never know maybe by next week it would be a different trend all together so this is not a situation where our Government should make policy decisions basing on that,” said Mr Robertson.

Calls for Zimbabwe to adopt the South African currency have become louder in recent times with the USAID Strategic Economic Research and Analysis programme saying, a monetary regime was needed to restore competitiveness in the country and provide sufficient liquidity in the economy, and the closest to achieving these objectives was the use of the rand.

“Using the rand would enable the economy to ride on the competitiveness of South Africa. The rand would inject liquidity in the economy because most of Zimbabwe’s external trade

is conducted with South Africa,” read the

study.

“Rand currency circulation would be a two- way flow unlike the dollar, which has multiple flows. In addition, South African banks operating in Zimbabwe could be called upon to provide rand liquidity.”

The rand has risen over 7 percent in the past three months alone and is the third top EM gainer so far this year after the Brazilian real and the Russian rouble.

The South African rand, having earned the dubious distinction of being one of the most beaten up emerging market currency last year, has emerged as one of this year’s best trades as a rebound in commodity prices and the likelihood that US interest rates would stay lower for longer helped lure investors back in.

Part of the rally is being driven by relief that the economy is proving more resilient than feared. Data published earlier this month showed South Africa’s economy rebounded from a 1,2 percent contraction in the first quarter to grow at an annualised rate of 3,3 percent in the second quarter.

Monetary policies — with expectations that both the Fed and South Africa’s own central bank would hold off on raising rates this week have provided further support for the rand.

“The last time we were below R14/$ was on 8 September, but that for a very short time,” said Umkhulu Consulting analyst Adam Phillips yesterday.

“I think the normal monthly forex offering from exporters, a tiny helping hand from offshore yield players (bonds also had a good day), selling of dollar at the end of the third quarter and concerns as to what to expect from the Federal Reserve Bank meeting topped the list.”

Meanwhile, the country, the world biggest producer of platinum and manganese, is benefiting from the pick-up in global commodity prices.

Still Peter Attard Montalto, analyst at Nomura, warned that the rand’s ongoing rally could prove fleeting given the various global and domestic headwinds. He expects the currency to drop back down to ZAR 17 per dollar before the end of the year. — Business Reporters/Wires.