By Ntombi Mhlongo
With the power supply struggles by South African energy supplier, Eskom, economic activity remains limited and detrimental to the Rand/Lilangeni performance.
Also, political developments in South Africa and global geopolitical tensions pose performance risks to the Rand/Lilangeni.
This is an analysis provided by the Central Bank of Eswatini in its summary of recent economic developments. The bank said during January 2023, Lilangeni’s exchange rate was generally stronger against the major trading currencies save for the Euro.
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On a monthly average, the Rand/Lilangeni appreciated by 1.2 per cent against the US Dollar, trading at an average of E17.08 to the US Dollar.
“The Rand/Lilangeni proved buoyant in the face of South Africa’s significant power supply shortages witnessed during the month that continue to dampen the economic outlook of South Africa. The Rand/Lilangeni appreciated in the back of mainly external forces than domestic developments,” the bank said.
It highlighted that the Federal Reserve Bank’s indication of slowing the pace of interest rate hikes in the US following the now falling inflation backed the Rand exchange rate outturn in the month.
Furthermore, with the global economic slowdown expected to be less pronounced than anticipated (2023 global growth from a previously estimated 2.7 per cent by IMF to 2.9 per cent), risk aversion in global markets is also beginning to subside.
This is beneficial to the emerging economies’ currencies such as the Rand, as flows to the safe-haven US Dollar decrease. The Reserve Bank of South Africa hiked interest rates by 25 basis points during the MPC meeting in January 2023, making Rand-based assets attractive to the markets.
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The Rand appreciated by 0.6 per cent month-on-month against the Pound Sterling on average though falling by 0.7 per cent against the Euro.
“Looking ahead, with the power supply struggles by ESKOM in South Africa and the announced near-term load-shedding, economic activity remains limited and detrimental to the Rand/Lilangeni performance.”
“Also, political developments in South Africa and global geopolitical tensions pose performance risks to the Rand/Lilangeni. At the end of January 2023, the Rand/Lilangeni was trading at E17.43 to the US Dollar, at E21.52 to the Pound Sterling and at E18.89 to the Euro,” the bank highlighted.
