Pula hits 7-month low against dollar
Brian Benza | Friday September 12, 2014 13:57
This week the pula lost ground against most major international currencies in the past twelve months, with the exception of the rand.
On Tuesday, the pula weakened to P9.02 to a dollar from trading around P8.8 for the past few weeks.
According to the Bank of Botswana (BoB) financial figures, the last time the pula breached the nine-pula mark was in February when it traded at P9.11.
Since August last year, the local currency has lost the most against the British pounds at 8.1 percent.
In the past twelve months the pula has also lost against the dollar (1.7 percent), euro (1.2 percent) while appreciating against the rand (1.3 percent) and the yen (3.8 percent) respectively.
In August alone, the pula depreciated against the rand (0.5 percent) and the dollar (0.3 percent) while appreciating against the pound (1.6 percent), euro (1.4 percent) and the yen (0.6 percent) in August.
The weakening of the pula is tracking the similar losses against the rand as a result of the operation of the currency basket against which it is managed. Under the BoB crawling peg currency management system the local currency basket includes the rand, US dollar, British pound, euro and Japanese yen.
In addition, a general strengthening of the US dollar has seen it gain against both the pula and the rand in recent months.
The fluctuation of the local currency provides a bittersweet scenario for the economy, as the latest trends are positive for rough diamond exports, which are priced in US dollars, but it increases Botswana government’s repayments on foreign loans.
The pula’s fall against the dollar would also boost the local currency value of foreign reserves while also increasing dollar-based exports, which are mainly diamonds.
On the other hand, the pula’s gains against the rand would lower the pula value of the country’s imports from South Africa, which make up more than 70 percent of the monthly import bill.
Experts also say prolonged weakness of the South African rand against the greenback would result in inflation triggered by higher wages in manufacturing and higher values for imports of inputs.
The rand and the dollar are key components of the weighted basket of currencies the BoB uses to gauge the pula value. Generally, weakness against one (rand or US dollar) is associated with gains in the other.