Nov. 10 (Bloomberg) -- The rand may slide to weaker than 8 per dollar by year-end as South Africa’s government intervenes to stem a 26 percent rally in the currency this year that has crimped exports, according to Royal Bank of Scotland Plc.

South Africa’s currency may depreciate to beyond RBS’s official year-end forecast on a “stronger intervention resolve from government,” Imran Ahmad, a London-based emerging-market currency strategist at RBS, said by telephone today. The rand lost 0.5 percent to 7.4436 per dollar by 2:20 p.m. in Johannesburg, from a close of 7.4077 yesterday.

“The intervention story is not being taken seriously enough by the market. The rand is quite a violent little beast and can swing around quite aggressively,” said Ahmad. Domestic issues like the weak economy and intervention talk “will provide some pretty strong headwinds to any further participation by the rand in the global risk rally,” he added.

The currency of Africa’s biggest economy has rallied to second-best among emerging markets this year as near-zero interest rates in the U.S. encouraged investors to purchase high-yielding assets such as those in South Africa, where benchmark deposit returns are 7 percent. The Finance and Economic Development Ministries as well as the central bank have said this year that the rand’s advance may be worsening the economy’s first contraction in 17 years, boosting speculation that policy makers may buy more dollars to weaken the currency.

“The strong rand is one of the reasons authorities have highlighted as having a negative effect on exporters,” said Ahmad.

Rand Talks

Economic Development Minister Ebrahim Patel told reporters in Cape Town today that South Africa is paying “a huge price” for the rand’s gains as it was pricing the nation’s goods “out of international markets.” Government plans to hold talks with business and labor unions within two weeks to discus ways of achieving a more competitive exchange rate, Patel added.

The rand is “overvalued” and “it is clear it is creating mechanical problems for the export sector,” said Murat Toprak, a strategist at Societe Generale SA in London.

SocGen’s forecast that the rand will slump 12.7 percent to 8.50 per dollar in the fourth quarter doesn’t consider possible government intervention to weaken the currency, according to Toprak. The bank has no prediction on how steeply the rand may decline should government intervene to weaken the currency, he added.

Dollar Purchases

South Africa’s central bank is likely to step up purchases of dollars to weaken the rand at levels of between 7.30 to 7.40 per dollar as the currency has struggled to sustain bouts of appreciation to beyond these levels, according to Ahmad.

“The 7.30 to 7.40 level is a key psychological level for the rand because that is where the central bank may move into the market to try and orchestrate a weaker currency,” said Ahmad.

Former Reserve Bank Governor Tito Mboweni said Oct. 1 that he had asked his staff to boost purchases of dollars in September to curb the rand’s advance. Finance Minister Pravin Gordhan said on Oct. 28 that government may “massage” the currency because it was too strong.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

Last Updated: November 10, 2009 08:40 EST