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Economists place the struggling rand under scrutiny
The South African rand is undervalued against the US dollar by 62 per cent
The Economist released the Big Mac Index a couple of days ago, and it shows that the rand is undervalued against the US dollar by 62 per cent.
The index is a survey that is used to measure purchasing power parity (PPP) between nations, particularly using the McDonald’s Big Mac price as a criterion.
According to Business Insider South Africa, these results make rand the “most underpriced major currency in the world”.
Jacques Hodsdon, the director of Affluence Group, commented that the rand does not have a reason to strengthen and the outlook does not look great.
South Africa is a small player in the world and our currency is effected much more by external than internal factors. Micro political factors and economic issues, such as Eskom and corruption, are part of the reason why the rand will remain undervalued.
“In short term, affects are minimal in the longer term, for example, the price of fuel will keep increasing,” Hodsdon said.
He further explained that “exporters benefit from a weaker currency as they will receive more money, while importers will feel the strain as they will have to pay much more when purchasing imported products”.
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Hodsdon suggests that to manage the situation, there needs to be economic growth in the country and political certainty to assist in stabilising the currency over the longer term.”
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