South African rand weathers the storm

Compared to many of its emerging market peers, South Africa’s currency has held up well despite pressures stemming from the Middle East war.

The rand has seen a very modest depreciation from the start of the war to now, as the local currency has remained highly resilient.

This is despite a recent warning from the International Monetary Fund (IMF) that said global activity now faces a major test from the outbreak of war in the Middle East.

The IMF specifically noted that commodity-importing emerging markets are at risk of being hit harder, with currency depreciation exacerbating the impact of higher energy and food prices.

However, Investec chief economist Annabel Bishop pointed out that South Africa has seen a very modest rand depreciation. 

She said that, while the IMF has warned of amplification effects stemming from the risk-off pervading in global financial markets, South Africa’s financial market indicators have already bounced back.

TreasuryONE currency strategist Andre Cilliers explained that the rand has remained resilient, currently sitting at R16.33 against the United States dollar.

South Africa’s currency is also showing gains against both the euro and the British pound, on the back of optimism over a potential peace deal between the United States and Iran.

Cilliers explained that the rand’s recent strength comes on the back of the US dollar currently holding near its lowest level since March.

The greenback has weakened amid optimism over a possible peace deal between the US and Iran, which has prompted traders to shed safe-haven positions. 

“The dollar has almost surrendered all its gains since the war erupted,” Cilliers said, which spells good news for the rand.

Bishop said that, while a slightly weaker rand has contributed to higher fuel prices since the war began, they were mostly driven by higher oil prices as opposed to currency movements.

She also pointed out that, prior to the start of the Iran war, the rand was temporarily at R15.85 to the US dollar.

The local currency is therefore not yet back to where it was before the outbreak of the conflict, but remains far more resilient than many expected.

The graph below, captured on 16 April at around 11:00, shows the rand-dollar exchange rate over the past six months.

Resilient growth 

Similar to the rand, many economists are expecting South Africa’s economic growth in 2026 to hold up better than many may expect.

The IMF recently downgraded South Africa’s economic growth outlook to 1% for 2026, down from an initial projection of 1.4%.

Bishop described this as “a large slowdown generally out of kilter with other key economies”, excluding those in the Middle East.

Contrary to the IMF’s view, Bishop said she does not expect South Africa’s economic growth to slow down as dramatically due to the conflict.

“We have not yet revised down South Africa’s growth forecast of 1.4%, and do not expect such a severe drop when we relook at it,” she said. 

While she expects the lagged effects of the Middle East war on inflation and other economic indicators to continue for the rest of the year, she expects the impact on growth to only be around -0.1%.

However, she warned that a longer war would have a more substantial effect on South Africa’s economy.

Bishop’s optimism is based, in part, on the resilience of many financial market indicators in South Africa, including the JSE and the country’s benchmark bond yield.

She pointed out that the yield on South Africa’s ten-year benchmark bond is back around 8.50%, from 9.35% at the end of March.

In addition, the JSE All Share Index is currently at 119,572, up from 110,070 at the end of March.

South Africa’s trade balance is also off to a strong start in 2026. While only the data for January and February is available so far, the country currently sits at a surplus of R45.5 billion.

This is largely due to the R8.5 billion surplus recorded for January 2026, which is a far cry from the R16.8 billion deficit recorded in the first month of 2025.

Bishop explained that January typically runs a trade deficit due to a drop in production during the festive season, and therefore normally sees lower exports, while imports tend to persist apace.