Rand briefly touches R11,27 to dollar

As the rand endured another nerve-racking session against the world's major currencies yesterday, attention shifted towards government's R43,8bn arms deal, with Parliament's finance committee saying it would ask the national treasury for regular updates on the cost.

It was another day of high drama for the currency as it slumped to R11,27 against the dollar, before staging a strong recovery to trade at R10,95 in late trade, having gone as high as R10,80.

It was equally volatile against the euro, going as low as R10,01 before retracing to R9,73.

The tentative recovery was apparently on the back of speculation that the Reserve Bank would announce moves to stem the tide, possibly reducing the 180-day grace period exporters have before they have to convert their foreign earnings into rand.

Exporters holding on to foreign exchange earnings for as long as possible in the hope of cashing in on a weaker exchange rate have been partly blamed for the rand's collapse. One dealer said an exporter selling dollars had helped the currency yesterday.

Parliament's finance committee shifted attention towards government's arms deal, saying it noted with "increasing concern" the rapidly growing exchange rate risk. It would be requesting the national treasury to provide quarterly updates of the revised cost of the acquisition. In the past Finance Minister Trevor Manuel provided his updates only when tabling his annual budget.

The committee also decided to investigate the possibility of holding a high-powered hearing on the declining currency next year, involving international experts on the effects of globalisation on developing economies and their currencies.

The issue was raised by Democratic Alliance finance spokesman Ken Andrew, who felt Parliament should respond to mounting social concern over the depreciating currency. The committee, in its report on the arms probe report, noted that the dramatic decline in the value of the rand could not have been taken into account at the time the arms deal was signed, but was "a serious factor that must be taken into consideration".

Some analysts have said the arms deal has added to the perception that the rand is a one-way bet. They say the deal, which will see SA paying billions of dollars to European arms manufacturers from 2004, will add further to capital outflows which, with little or no inflows to compensate, will drive the currency even lower.

Meanwhile, the equity market continued to benefit from the rand's woes, with rand hedge stocks pushing the JSE Securities Exchange SA's all share index above 10000 for the first time.

However, the sell-off in the bond market slowed as the market saw the risk of an interest rate hike as unlikely. The yield on the R150 long bond was up another 18 basis points to 10,93%. Bond prices fall as yields rise.

With acknowledgement to Lukanyo Mnyand, Linda Ensor and Business Day.