Where Standard Bank sees the rand going for the rest of 2025

The rand is likely to remain relatively strong against the US dollar in the short term, but is likely to weaken slightly throughout the rest of the year to finish at R18.06 per dollar. 

South Africa’s local currency will be buffeted by global events, particularly a potential trade war between major economies and a slowdown in economic growth around the world. 

The main drivers of the rand’s strength and weakness will come from its traditional source of commodity prices, with the country still being heavily dependent on the export of raw materials for foreign exchange earnings. 

This is feedback from Standard Bank chief economist Goolam Ballim, who outlined the bank’s macroeconomic outlook for the rest of 2025 and beyond in an interview with Daily Investor. 

Ballim explained that despite the intense focus on South Africa’s local politics and developments, many of the drivers of its economic growth come from external factors. 

As a small, highly open economy, the country is heavily dependent on global trade and particularly demand for its commodities for growth. 

The United States’ recent structural shifts in its trade policy have clouded the outlook in this regard and pose a threat to the country’s economy. 

These global factors are also the main drivers of the rand’s relative strength and weakness with the currency often being traded as a proxy for emerging market sentiment. 

“Our forecast for the rand this year is to end at R18.06 to the US dollar, with it strengthening slightly next year to end 2026 at R17.96 to the dollar,” Ballim said. 

“We note that obviously the rand has appreciated against he dollar, but it has not made material gains on other major currencies, such as the pound and euro.”

This shows that the rand’s appreciation versus the dollar is largely due to the greenback weakening and not so much due to the rand’s inherent strength. 

A relatively stronger rand versus the dollar is good for tempering inflation and mitigating against rising oil prices, creating significant benefits for the country. 

However, Ballim said that at the prevailing levels, the dollar is not trading at its fair value, with elevated uncertainty regarding US fiscal and trade policy overweakening the currency. 

“At the same time, we do not anticipate a near-term strengthening of the dollar because we do think that it will remain vulnerable in the coming quarter.” 

This vulnerability suggests that the rand could remain relatively firm compared to the dollar, but it is likely to weaken somewhat once greater certainty is available to financial markets regarding US policy. 

Local factors still at play

This updated forecast for the rand in 2025 is different from that given by Ballim at Standard Bank’s annual Economy event in February. 

Then Ballim said that the bank expects the rand to be between R17.80 and R18 to the US dollar by the end of the year, with its bear case seeing the currency at R19.32 to the greenback. 

Ballim made it clear then that it would be a difficult year for economists, with elevated levels of volatility and uncertainty forcing them to constantly update their outlooks. 

One thing making this particularly hard in South Africa is that global uncertainty is not the only factor at play, with local political tensions creating a double-whammy. 

This double-whammy impacts exacerbate the impact of global events on the rand, with little to no buffer between geopolitical tensions and local assets. 

When global and local factors combine, the impact on the rand’s value can be severe, but so far, the country has been lucky in that the tensions within the Government of National Unity (GNU) have not occurred in lockstep with global events. 

In some ways, global events have protected the rand and local assets from the worst impact of GNU infighting and brinkmanship. 

A weaker dollar due to concerns about US fiscal stability and trade tensions has masked the impact of GNU instability on South African assets. 

As a result, despite all these factors, the rand has not moved far from its fair value, considering the idiosyncratic risks of South Africa. 

The fair value of a currency is most commonly calculated using inflation differentials or by using Purchasing Power Parity (PPP). 

These methods are based on the fact that the rand will naturally adjust to ensure South African exports are priced competitively worldwide.

Ballim’s calculations point to the rand’s fair value being between R17.80/USD and R18/USD – not far off its current level of R18.44/USD. 

Indices such as the Big Mac Index indicate that the rand’s fair value is much stronger than this, closer to R12/USD and even as low as R9/USD.

However, these do not include the significant risk premium attached to South Africa, which results in the rand trading far below this fair value. 

This premium has largely been driven by the country’s stagnant economy, high government debt levels and increased policy uncertainty.