Standard Bank sees rand hitting R17.75 to the US dollar

In its base scenario for the year, Standard Bank expects the rand to be at R17.75 to the United States dollar at the end of 2025.

However, the bank’s bear scenario has the currency at R19.32/USD, while its bull case sees the rand end at R16.54/USD. 

This was revealed in the bank’s annual financial results for the year ended 31 December 2024, when its Africa Regions portfolio suffered from a stronger rand in the second half of the year. 

With its African businesses contributing 41% of headline earnings, this muted Standard Bank’s growth somewhat despite strong performances in South Africa and the continent in constant currency terms. 

The Africa Regions business also delivered a strong performance, growing earnings by 22% in local currency. 

After accounting for a stronger rand during the reporting period, the Africa Regions portfolio delivered earnings of R18 billion, marginally lower than the prior period.

Standard Bank expects the rand to continue strengthening against the dollar throughout 2025 but expects other African currencies to hold their own against the local currency. 

The rand’s performance against the dollar will be driven by improved economic growth in South Africa, albeit from a very weak base, and healthier government finances. 

Standard Bank said local bonds have benefitted from the improved political and policy background following the formation of the Government of National Unity (GNU). 

It cautioned against being overly optimistic as local bonds still discount a significant risk premium due to investor concerns about the government’s ability to engineer higher economic growth and fiscal consolidation. 

The declining risk premium has resulted in a stronger rand, reduced inflation, and created space for the Reserve Bank to cut interest rates. 

Standard Bank broadly expects this trend to hold despite elevated tension among GNU partners and increasing global uncertainty. 

Increased global uncertainty may benefit the rand in a strange way, with investors flooding to US Treasury Bills as a safe haven. 

This will push down US bond yields and make South African bonds relatively more attractive, resulting in increased capital flows into these assets, strengthening the rand. 

The table below shows Standard Bank’s macroeconomic forecasts for the coming year and over the period from 2026 to 2028. 

Standard Bank cautioned that the global backdrop remains fragile

Standard Bank cautioned that the global backdrop remains fragile amid ongoing geopolitical tension and uncertainty about US policy changes. 

The bank’s chief economist, Goolam Ballim, said earlier this year that this makes forecasting incredibly difficult and requires constant reassessment as fresh data comes in. 

Currently, the bank’s main concerns

are the uncertainty regarding US trade policy and the magnitude of China’s economic stimulus. 

These have the most potential to impact the rand’s value as the US has an outsized impact on financial markets, and China is South Africa’s largest trade partner. 

This does not mean that local factors do not play a role, as faster economic growth and improved government finances potentially support the rand and minimise the impact of external shocks. 

Standard Bank expects South Africa’s economic growth to accelerate off a particularly weak base due to the easing of infrastructure constraints, higher confidence levels, and reduced interest rates. 

Policy continuity, particularly fiscal consolidation and further structural reforms, is key to improving economic growth and potential rand strength. 

Under Standard Bank’s bear case, tensions within the GNU can jeopardise this outlook and reverse South Africa’s declining risk premium. 

If the GNU breaks up and a ‘confidence and supply’ agreement replaces it, confidence in South Africa will rapidly decline, and local financial assets will plunge. 

This would significantly weaken the rand against the dollar and lead to inflation spiking in South Africa, forcing the Reserve Bank to pause interest rate cuts and potentially hike rates. 

However, such a scenario is unlikely as there are clear reasons why the GNU would hold. 

Ballim explained that parties within the GNU are viewed more favourably than those outside of it, making it a case of self-interest to stay in the coalition.