The rand is unlikely to stabilise in the next week or two, Kruger International economist Ulrich Joubert said on Wednesday after volatile trade.

It would not stabilise until the international markets did and even then, would probably remain weak for some time, he said.

The rand dropped to R9.45 against the dollar on Wednesday, its worst level in six years, but had recovered to 9.26 by 4pm.

One factor behind the rand's weakness was the strength of the dollar, said Joubert.

The US currency had been strong against most of the big international currencies, including the euro and the British pound.

It had also been strong against the currencies of emerging markets — one of which was South Africa.

Inflation rate differential

Another factor was the inflation rate differential between South Africa and not just its trading partners but its competitors, like Australia, which exported the same products to the same markets as South Africa.

Australia's inflation rate target of two to three percent was half of the six percent target South Africa aimed to achieve.

At the moment, Australia's inflation was at about four percent. South Africa's was in the region of 13 percent.

South Africa had a well-developed financial system which made it easy for people to enter the financial markets, and unfortunately also easy to move out — as was happening.

Right now, capital was flowing out of the local markets into the rest of the world

Joubert said another problem was that South Africa was importing too much and exporting too little — a problem which had been cautioned against for some time already.

The country had depended on foreign investors to service the current account deficit since 1994, attracting only a handful of long-term capital inflows and 90 percent of a short-term nature.

Impossible to plan

The risk had been that, if these investors caught fright because of the situation in Zimbabwe for example, the money being attracted from offshore could flow out overnight — as was being seen now.

Joubert said the volatility on Wednesday made it almost impossible for importers and exporters of goods and services to plan.

Rand weakness would also hit the country's public service infrastructure projects — such as those of Eskom and Transnet — with roughly 40 percent of their budgets to be spent on imports.

"They're going to cost somewhat more than when the rand was at 7.50 [to the dollar]," he said. Even the cost of the Gautrain would increase.

South African markets would remain volatile while the international markets were volatile, but in South Africa's case the ups and downs would be even more pronounced.

Sapa