Rand expectations in 2023

Experts are unanimous in saying that the rand will remain under pressure in the near future due to an uncertain global economic outlook, a strong dollar, and higher oil prices.

However, local factors are increasingly important in determining the value of the rand.

The South African Reserve Bank (SARB) surprised the market by raising the repo rate by 50bps to 7.75% at the last meeting of the Monetary Policy Committee. 

This saw a short-lived increase in the rand’s value to R17.72 to the dollar from a high of R18.60 before the interest rate hike. 

The rand quickly returned to trading above R18/$ and, as of 11 April, is trading at R18.47/$. 

South Africa’s currency is the third worst-performing emerging market currency in 2023 and is trading at a significant discount to its fair value. 

Daily Investor asked experts where they see the value of the rand going in the near future and the driving factors behind its value.

Lisette de Schepper, senior economist at the Bureau for Economic Research 

Lisette de Schepper said that global factors determine the value of the rand to a much larger extent than local factors, particularly the actions of the Federal Reserve in the United States. 

The rand generally suffers in times of global uncertainty. The global economic environment is highly uncertain, with fears of a recession in the United States, the ongoing conflict in Ukraine, and uncertainty regarding China’s economic performance. 

If the Federal Reserve continues to hike interest rates in the US, the dollar will strengthen further relative to the rand. 

However, this is against market expectations for the Federal Reserve to pause its rate hikes and potentially cut rates towards the end of the year. This will weaken the US dollar relative to the rand. 

However, local factors also influence the rand’s value, with weak economic growth dragging the currency. 

South Africa also experienced significant capital outflows in 2023, resulting in a deteriorating balance of payments and a weaker rand. 

  • De Schepper expects the rand to remain under pressure throughout 2023 and may continue to underperform its emerging market peers. 

Dawie Roodt, chief economist at the Efficient Group 

Dawie Roodt

Chief economist at the Efficient Group, Dawie Roodt, said that at R18/$ and above, the rand is highly undervalued.

  • The rand’s fair value is estimated to be around R17-17.5/$. 

Thus, the rand will ‘drift’ stronger if there are no global and local shocks. Roodt is pessimistic that no such shocks will occur as “they happen too often recently”.

The value of the rand, according to Roodt, is driven by international factors such as international interest rates, oil prices, and geopolitical tensions. 

The influence of local factors cannot be dismissed, though, particularly weak economic growth and the rising unsustainability of South Africa’s debt. 

Xhanti Payi, senior economist at PwC South Africa

In slight contrast to the others, Xhanti Payi from PwC South Africa emphasises the role of local factors in determining the value of the rand in 2023. 

South Africa’s current account balance has deteriorated significantly of late, with a deficit being declared for the first time in three years in the last quarter of 2022. 

This is predominantly due to the increased import of alternative power sources, such as solar panels, inverters, batteries, and generators.

The import of such goods is expected to increase throughout 2023, further deteriorating the balance of payments and weakening the rand. 

The deteriorating balance of payments is compounded by capital outflows to developed economies due to a decrease in global investors’ risk appetite from growing uncertainty in the global economy.  

South Africa’s weak economic growth and low foreign direct investment (FDI) levels also contribute to a weaker rand. 

Weak global growth will result in decreased demand for commodities, deteriorating South Africa’s balance of payments further and thus weakening the rand. 

Oil production cuts by Saudi Arabia and other oil producers will keep inflation elevated throughout 2023. This may force the Federal Reserve to continue hiking interest rates, further strengthening the dollar. 

  • Thus, Payi expects the rand to weaken further throughout 2023 relative to the dollar.

Bianca Botes, director at Citadel Global 

Bianca Botes from Citadel noted that the rand is one of the worst-performing emerging market currencies in 2023.

  • However, Botes expects the currency to dip below R17.50/$ by year-end. 

This is predominantly due to the Federal Reserve pausing interest rate increases in the second half of the year with inflation easing. 

However, the rand will trade weaker relative to the Euro and Pound as the European Central Bank, and the Bank of England will likely continue to hike rates into 2024. 

The key factors to watch for Botes are US interest rates, China’s economic performance, which will drive demand for commodities, and general uncertainty in the global economy. 

Jeff Schultz, senior economist at BNP Paribas South Africa

Jeff Schultz of BNP Paribas South Africa expects the rand to remain an underperformer among emerging market currencies due to a weak domestic economy and global uncertainty. 

BNP Paribas forecasts US dollar weakness in the second half of 2023, but this will not result in a more valuable rand due to South Africa’s poor economic performance. 

The reopening of China’s economy is expected to increase demand for commodities, improving South Africa’s balance of payments and thus strengthening the rand. 

However, Schultz said South Africa is not taking advantage of China’s reopening due to inefficiencies at its ports and poor rail infrastructure. 

  • The fair value of the rand, according to BNP Paribas, is R17.50/$, but due to South Africa’s weak economic performance, it will average R18/$ throughout 2023.


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