Pula hits all-time low against US dollar
Mbongeni Mguni | Friday December 12, 2014 13:13
The drop in nominal rates, from P8.83 at the beginning of the year, continues a trend seen in the last two years, as the US dollar has strengthened from its global recession weakness. In 2013, the Pula shed 10.8 percent against the US dollar, while for the year up to yesterday, it had lost 7.13 percent.
On Monday, the Pula opened the week nominally valued at P9.40 against the greenback, before dropping to the record low on Tuesday, then subsequently recovering marginal ground to close yesterday at P9.46.
In South Africa, the Rand opened the week at R11.40 against the US dollar, dropped to R11.57 during Tuesday before opening yesterday at R11.52.
Prominent economist and Econsult managing director, Keith Jefferis, said the Pula’s movements were a direct result of its relationship with the South African Rand.
“The driver is the weakness of the Rand and the strength of the US dollar against all currencies,” he said.
“The Pula is mechanically following the movements of the Rand against the US dollar.”
The value of the Pula is determined by a basket of currencies comprising of the South African Rand with a weight of 55 percent, and Special Drawing Rights currencies such as the US dollar which have a weight of 45 percent. To maintain a competitive exchange rate, the Bank of Botswana focuses on the real effective exchange rate, which is the inflation-adjusted exchange rate of the Pula against currencies of the major trading partner countries. The effect of the basket is such that the Pula tends to gain against the Rand whenever it depreciates against the US dollar and other SDR currencies.
On an annual rate, the Pula had risen 1.2 percent against the Rand at the beginning of December, marking another year of gains against the South African currency.
Jefferis said the local currency’s trends against the dollar would be “a gain” to the mining sector, although there were also possible drawbacks. “For mining, it’s a gain because almost all their products, from diamonds, gold to copper, are priced in US dollars and their costs are largely in the South African Rand or Pula,” he said.
“A drawback could be that as the Rand weakens against the US, this may push inflation there higher and that could affect us through what we import. This could partially be offset by our stronger rate against the Rand, however.” Local firms exporting to South Africa could also suffer competitiveness issues as well. One local firm, however, is already counting the gains of the weaker US dollar. Debswana managing director, Balisi Bonyongo, recently said the diamond giant would post record returns for shareholders this year, driven by a “exchange rates, stronger prices due to healthier consumer demand in the US and better operational efficiencies.
Global experts believe the US will keep “getting stronger than anyone can imagine” due to the resurgence of the American economy, as well as healthier prospects.