Trade tensions between the US and Turkey continue to pummel emerging economies. Photo: Xinhua
JOHANNESBURG - Trade tensions between the US and Turkey yesterday continued to pummel emerging economies, sending the rand into a tailspin that could see another hike in fuel prices in South Africa and put more pressure on inflation.

The rand slipped more than 10percent in 24 hours, breaching the R15 mark against the dollar before staging a mini recovery, as the sell-off in the Turkish lira spread across emerging markets.

By 5pm yesterday the rand was bid at R14.30.

Andre Botha, a currency trader at Treasury One, said the rand weakness would put pressure on inflation, given the runaway fuel price hikes.

Botha said the upward pressures on inflation could lead to an interest rate hike.

“International trade wars and additional tariffs on steel from Turkey introduced on Friday all add to the current chaos,” Botha said. “Developments must be monitored very carefully as the market is very edgy and a small headline could have a significant impact on the rand, with everybody running for the hills.”

The rand’s sharp fall this year has seen imported goods like oil become more expensive, which has seen fuel prices spike sharply.

Analysts yesterday warned that the continuing weakening of the rand could push inflation further to the upper end of the SA Reserve Bank (Sarb) target range.

Last month the Sarb warned that escalating trade tensions, the sustained elevation of oil prices as well as geopolitical developments continued to pose risks to the inflation outlook.

The meeting, which kept the repurchase rate unchanged at 6.5percent, said that the risks to inflation remained on the upside

Annabel Bishop, chief economist at Investec, said the rand would remain volatile on the back of continuing trade sanctions.

Trade tensions

“The rand could move towards R14.75 against the dollar this week, if it convincingly breaks through R14.50,” Bishop said.

“If global trade tensions advance into an actual trade war with marked global risk-off, then the rand is likely to move into the down case of R15.90 in the fourth quarter, R15 in the third quarter and R17 in the first quarter of next year, if not sooner.”

The Turkish lira has been in free fall since Friday, weakening by as much as 13percent against the dollar as a result of economic mismanagement and escalating geopolitical tensions with the US.

Having been denied the release of US pastor Andrew Brunson, who is being detained in Turkey on terrorism charges, the US has now implemented retaliatory tariffs on Turkish aluminium and steel, after US President Donald Trump’s threats of a trade war.

Maarten Ackerman, chief economist at Citadel, said the rand would remain under pressure as a significant appreciation from current levels was highly unlikely.

“We also need to consider that South Africa’s current account deficit and fiscal deficit are both fairly large, even when compared to our emerging market peers.

"This is leaving the country highly vulnerable in any risk-off environment, where investors are selling emerging market assets,” Ackerman said.