JOHANNESBURG, South Africa
The South African rand fell to a seven-year low on Monday.
The rand dropped to 17.91 against the dollar in morning trading, a level it had not seen since 2008.
Rand-denominated bond yields rose to a seven-year high, as investors looked for safe harbors away from the country.
Economists are predicting tough times for South African consumers as the weak rand makes imports more expensive.
Lulu Kruger, senior economist at KPMG in Johannesburg, told Anadolu Agency on Monday that consumers can’t avoid imports in the country.
‘‘We are an economy that depends on imports. We forecast a bit of pressure on food inflation,” she said. South Africa is currently facing a drought and most food products like maize are imported from other countries, she added.
The rand has lost about 30 percent of its value since July 2015 when turmoil was first reported in the Chinese markets, Kruger explained. “The slow growth of the Chinese economy affects South Africa because we export a lot to that country.
Kruger also attributed the weak currency to domestic factors such as the slow growth of the South African economy, growing government debt and the recent change of finance ministers which created investor uncertainty.
Markets reacted negatively after Zuma’s decision on Dec. 9 to remove respected finance minister Nhlanhla Nene and replace him with David Van Rooyen, a relatively obscure MP. Pravin Gordhan - finance minister from 2009 to 2014 – replaced Van Rooyen three days later after the rand plunged against the dollar.
Kruger also said that turmoil in developing or emerging economies tend to affect South Africa.
She said South Africa is also seen as a resource economy, and some mining companies were pulling out due to pressure on commodities prices. The decline in mining is also affecting the rand, Kruger pointed out.
Like all emerging markets currencies, the rand is also feeling the effects of the Federal Reserve rate hike on Dec. 16, a move which pushes investors to place more funds in the U.S. and to take them out of developing economies.