Following the break in relationship between the United Kingdom (UK) and the European Union (EU), Finance Minister Pravin Jamnadas Gordhan has admitted that the Rand has free-fell.
The Minister had predicated that Britain’s exit would result in volatility in the financial markets, in sentiment and confidence.
He said reactions to the decisions made in the UK last week saw the share market in the London Stock Exchange lose significant amounts of money.
South Africa is currently one of the most volatile emerging markets with an unpredictable currency swings.
Minister Pravin Jamnadas Gordhan Analyzes SA Economy
Gordhan stated: “The currency was uncertain for business if you are importing or exporting. If you are exporting you would have a slight advantage when the currency depreciates and if you are importing, it increases the cost of imports.
We are importing wheat as a result of the drought and this pushes up the cost of wheat. Throughout the world at the moment, they have a reluctance [in] part of business to invest. Demand has dropped across the world including South Africa as well.”
He disclosed further that the Reserve Bank will continue to monitor the situation carefully for the next few days in order to determine the next step.
According to the Minister, “The middle eastern markets were open today [Sunday] and they were already showing further decline in trading in those markets so we don’t know what is going to happen tomorrow morning.
He noted that South Africa attracts investments from the UK, Germany and other European countries but hoped that the current uncertainty won’t impact on investments.
According to Bloomberg, on Monday at 7:00, the rand went down by 4.65% at R15.25 against the dollar and 3.6% up against the ailing pound at R20.44.
Jumps in the rand/dollar exchange rate on Friday swung from 2% to 8.5%. The pound – at a 31 year low – slipped another 2% to $1.3403 as of 12:58 Tokyo time, extending Friday’s 8.1% plunge, it added.
Pravin Jamnadas Gordhan reassured South Africans that the banking and financial institutions are well positioned to withstand financial shocks.
“Equally, we are confident that our financial systems (including the banks and the regulatory framework we operate under) are extremely resilient and reliable,” he said.
Over 33 million people from England, Scotland, Wales, Northern Ireland and Gibraltar made their big say on Brexit campaign, which received 52 percent in Thursday’s historic referendum.
Though, UK PM David Cameron supported the campaign for Britain to remain in the EU, he remarkably disclosed that the British people have made “a very clear decision to take a different path.”
However, not only South Africa, several countries are yet to find their feet in the market sector following Britain’s exit from the EU.