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Friday, 8 March, 2002, 12:41 GMT
Zimbabwe election fears hit rand
Less than a day ahead of Zimbabwe's bitterly contested presidential election, South Africa's currency is feeling the pinch.

Early trading on Friday saw the rand slide by more than 5% to 12.21 rand to the US dollar, as traders stampeded for the safety of the greenback.

While rand had recovered to a level of 11.99 by 1100 GMT, that rate still represented a slide of more than 9% since Thursday morning.

The falls are making it more likely that the central bank will raise interest rates - possibly by a full percentage point to 11.5% - when it meets next week, thanks to the risk of higher inflation from a weakened currency.

Impending

The rand is still well away from the lows seen at the end of last year, when it bottomed out at 13.85 to the dollar - a fall of 37% in a single year.

Even so, no-one, it seemed wanted to be left holding the rand on Monday morning, when the Zimbabwean elections will be over and results will start trickling through.

President Robert Mugabe's 22-year rule is facing its stiffest challenge yet, as rival MDC, led by Morgan Tsvangirai, attempts to win power.

The MDC came within an ace of topping Mr Mugabe's Zanu-PF in parliamentary elections in 2000, and helped catalyse the defeat of a controversial constitution referendum.

The response from the government was a fast-track land reform programme which has devastated Zimbabwe's economy.

After a campaign dogged by violence and irregularities, and the adoption by Zanu-PF of old-school Marxist-Leninist economics, a result in either direction could trigger much worse instability.

Holding the baby

And now the fear is that decline will continue to drag on South Africa's otherwise good economic reputation, even though the trading relationship with its impoverished northern neighbour accounts for just 3% of overall exports.

"No prizes for guessing that it's the Zimbabwe factor that's driving this," said one trader in London.

"The developments over the past couple of weeks are leaving everyone with a bad taste.

"The likelihood of a Mugabe victory - whether or not it's fixed - is not doing anything to encourage confidence."

The falls have dispelled this week's rally, built on the opening of a government inquiry into why the rand's value collapsed so quickly last year.

The inquiry helped stem speculative trading in the currency, which the imminence of the election has now reignited.

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 ON THIS STORY
Iraj Abedien, Standard Bank (South Africa)
"It's the instability in neighbouring countries that is affecting the rand."
See also:

05 Mar 02 | Business
Rand gives up its gains
04 Mar 02 | Business
Public inquiry strengthens rand
20 Feb 02 | Business
South African budget goes for growth
04 Feb 02 | Business
Investors wary of southern Africa
16 Jan 02 | Business
South Africa rate rise fears
09 Jan 02 | Business
South Africa probes rand plunge
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