Rand to Weaken 3 Percent by Year-End, Morgan Stanley Forecasts By Garth Theunissen Oct. 9 (Bloomberg

Pleschinger , an analyst at Morgan Stanley, said separately in a telephone interview from London. The rand lost 0.5 percent to 7.3723 per dollar by 5:50 p.m. in Johannesburg, from a close of 7.3325 yesterday. “The strength of the currency means South Africa cannot take full advantage of the commodity rally,” said Pleschinger. “The structural weakness of the current account is still there while high inflation will keep monetary conditions tight and limit a recovery in domestic demand.” The rand has rallied 27 percent this year as signs the global recession is easing boosted commodity prices and encouraged purchases of higher-yielding assets. The gains have hurt export earnings for commodity producers including Impala Platinum Holdings Ltd., the world’s biggest producer of the precious metal. “Quite clearly the strength of the rand is having a nullifying impact on profit, which has a knock-on effect on future cash flow and investment,” Impala Platinum’s chief executive David Brown said in a telephone interview today. “A rand weaker than where it is currently would be a lot more beneficial,” Brown added, declining to specify a preferred level for the currency. Morgan Stanley is “neutral” on the rand-dollar exchange rate and “cannot make a strong case to sell the rand outright” against the U.S. currency, said Pleschinger. Instead, the brokerage recommends taking “long” rand positions against the Turkish lira as the African currency’s carry trade advantage causes it to “outperform” the lira, said Pleschinger. A “long” is a bet an asset will appreciate while a “short” is a wager on depreciation. South Africa’s currency has returned 35 percent to investors who borrowed in dollars at low interest rates to invest in rand-denominated assets, a process known as the carry trade. South Africa’s 7 percent benchmark interest rate compares with rates of almost zero in the U.S., Europe and Japan. Pleschinger declined to provide a forecast for the rand’s exchange rate against Turkey’s lira saying it had not yet developed a “properly defined target level” for how the two currencies may trade against each other. To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net Last Updated: October 9, 2009 14:53 EDT