Rand Rebounds After Falling on Concern for Power Funding

The rand dropped today for the third straight day as the speculation that the World Bank won’t grant the loan for Eskom Holdings Ltd., which would be used to fund the construction of the coal-fired Medupi plant, arose concern for economic expansion of the region and doubts about the capital inflows, but after its fall the currency rebounded.
Eskom Holdings Ltd. is the South Africa’s state power utility, which provides about 95 percent of South Africa’s electricity. It is looking for the $3.75 billion loan for the construction of the 4,800-megawatt coal plant, which will likely become the fourth-largest in the world. The three U.S. lawmakers from the committees, overseeing the World Bank‘s policy and funding, demanded more environmental and social commitments related to the plant from Eskom. Pravin Gordhan, the South African Minister of Finance, announced last week that South Africa won’t agree to any conditions for receiving the loan.
The South Africa’s economy may experience severe consequences in case the region’s power requirements won’t be properly funded, as the result the rand may be hurt if the loan will be rejected. The loan may also be required to attract the foreign-currency inflows. The protests of the environmental activists may cause the U.K., which have an influence on the important decisions of the World Bank, to halt the offer.
USD/ZAR dropped to 7.266 today as of 18:50 GMT after it opened at 7.273 and reached as high as 7.356. EUR/ZAR traded at 9.703 by 18:47 GMT after opening at 9.6979 and reaching its lowest level of 9.6718.

If you have any questions, comments or opinions regarding the South African Rand,
feel free to post them using the commentary form below.