The euro has fallen almost 12% from the start of 2022, this being almost exclusively due to Putin’s war in the Ukraine which has sent fuel prices rocketing, resulting ultimately in the inflation rate in Euroland heading beyond 6%. The ECB’s response of hiking interest rates (another.25% hike expected) makes matters worse given that such monetarist policy seems inappropriate where the problem lies on the cost-push supply side rather than on the demand pull side. This will be exacerbated by winter demand for heating fuel so further Euro weakness can be expected. And recession beckons as a result across the world.
The Rand has fared considerably worse against the U$, currently at R17.20, a much larger depreciation relative to the Euro.
SA’s inflation rate is likely to have accelerated beyond May’s 6.5% and the SA Reserve Bank is expected to increase the Repo rate by 50 basis points this week, a move that will assist the strength of the ZAR in the short term, particularly since commodity prices are still assisting the currency, although as stated previously, commodity prices are falling as demand slows down in line with slowing economies around the world.
What is the relevance of this to our partners? Rand relative strength assists our partners since Unify products are traded in Euros. In an inflation scenario, companies need to restrict price increases by lowering costs, and one of the strategies that is persisting beyond Covid19 lockdowns is remote working by employees.
Our partners should investigate Giraffe’s offerings in regard to remote working solutions.
Peter GeesChartered Accountant (SA) Advocate of the High Court of South Africa