End of an era for the South African rand
Bianke
Neethling
Up until recently, the rand’s strength has largely been attributed to factors outside of the country’s control, such as a weaker United States dollar.
However, recent positive momentum in South Africa, including a stronger fiscus and S&P’s recent ratings upgrade, has boosted the rand further, ushering in a new era for the local currency.
While the rand will likely continue to experience its infamous volatility, South Africans can be cautiously optimistic about the local currency’s medium-term performance.
Don Consultancy Group chief economist Chifipa Mhango said the recent strengthening of the rand against the US dollar is a positive indication that South Africa’s economic reforms and fiscal stability measures are beginning to gain credibility with global markets.
He said the rand’s recent strength reflects improving market sentiment, stabilising macroeconomic fundamentals, and renewed global appetite for emerging-market assets.
This comes after the rand hit its strongest level in years following Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement on 12 November.
The rand briefly broke through the R17/USD threshold, reaching around R16.95/US$, before weakening slightly, and has been hovering between R17.05 and R17.25 to the US dollar ever since.
“The rand’s strengthening shows growing investor confidence in South Africa’s macroeconomic trajectory,” Mhango said.
“The combination of improved fiscal signals, progress on energy and logistics reforms, and lower global interest rate pressures has created a more supportive environment for the currency.”
Mhango explained that the rand’s recent gains are being driven as much by global dynamics as domestic reforms.
This marks a departure from earlier this year, when the rand’s strength was largely attributed to factors outside of the country’s control, including a weaker US dollar.
However, Mhango said the tide has turned, with positive momentum in South Africa now a main driver behind the rand’s strength.
This is not to say that global factors are not also contributing to the rand’s strength alongside domestic drivers.
For example, Mhango highlighted easing US inflation and expectations of slower interest rate hikes, which have weakened the dollar and, therefore, contributed to the rand’s strength.
In addition, improving global risk appetite, which is pushing capital back into higher-yielding emerging markets like South Africa is also boosting the local currency.
At the same time, he said stabilising commodity price, especially in platinum group metals, gold and iron ore, are also reinforcing support for the rand’s recovery.
Mhango explained that while a weaker US dollar due to modeating inflation has been a critical driver, South Africa’s domestic signals are becoming increasingly important in shaping market behaviour.
“Investor confidence is strengthening because South Africa is finally showing clearer fiscal direction and meaningful reform momentum,” Mhango said.
“The stabilisation of public debt, improved revenue performance, and a narrowing fiscal deficit signal greater fiscal discipline.”
“At the same time, tangible progress in reducing load-shedding, expanding grid capacity, improving freight logistics, and opening ports and rail to private participation is changing the sentiment narrative.”
He added that the government’s commitment to more than R1 trillion in infrastructure investment over the next three years is further reinforcing confidence in the country’s economic outlook.
These were all factors S&P Global also cited in its decision to upgrade South Africa’s debt rating to BB and maintain the country’s positive outlook.
This upgrade puts South Africa just two steps below investment grade, with the potential for a further lift at S&P’s next review.
South Africa’s positive trajectory can be seen in the rand’s strength, which Mhango said is both a relief and responsibility.
“On the upside, a firmer currency lowers import costs, helps ease inflation, improves foreign dominated debt-servicing conditions, and boosts investor confidence,” he said.
“But sustaining these gains will require South Africa to accelerate reforms in energy, water and logistics, strengthen governance at SOEs and municipalities, and lift the country’s growth potential.”
“Ultimately, the real test is whether a stronger rand can translate into greater industrial competitiveness, job creation and broad-based economic growth.”
In the meantime, he said South African can expect the rand to remain volatile, as it is an inherent feature of emerging market currencies.
However, Mhango said he is cautiously optimistic about the local currency’s medium-term performance, particularly if South Africa can keep its positive momentum going.
“If South Africa maintains fiscal discipline, accelerates infrastructure delivery, and continues improving the ease of doing business, the rand will remain supported,” he said.
“Sustainable currency strength ultimately rests on stronger growth and deeper structural reforms.”
-Daily Investor
Neethling
Up until recently, the rand’s strength has largely been attributed to factors outside of the country’s control, such as a weaker United States dollar.
However, recent positive momentum in South Africa, including a stronger fiscus and S&P’s recent ratings upgrade, has boosted the rand further, ushering in a new era for the local currency.
While the rand will likely continue to experience its infamous volatility, South Africans can be cautiously optimistic about the local currency’s medium-term performance.
Don Consultancy Group chief economist Chifipa Mhango said the recent strengthening of the rand against the US dollar is a positive indication that South Africa’s economic reforms and fiscal stability measures are beginning to gain credibility with global markets.
He said the rand’s recent strength reflects improving market sentiment, stabilising macroeconomic fundamentals, and renewed global appetite for emerging-market assets.
This comes after the rand hit its strongest level in years following Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement on 12 November.
The rand briefly broke through the R17/USD threshold, reaching around R16.95/US$, before weakening slightly, and has been hovering between R17.05 and R17.25 to the US dollar ever since.
“The rand’s strengthening shows growing investor confidence in South Africa’s macroeconomic trajectory,” Mhango said.
“The combination of improved fiscal signals, progress on energy and logistics reforms, and lower global interest rate pressures has created a more supportive environment for the currency.”
Mhango explained that the rand’s recent gains are being driven as much by global dynamics as domestic reforms.
This marks a departure from earlier this year, when the rand’s strength was largely attributed to factors outside of the country’s control, including a weaker US dollar.
However, Mhango said the tide has turned, with positive momentum in South Africa now a main driver behind the rand’s strength.
This is not to say that global factors are not also contributing to the rand’s strength alongside domestic drivers.
For example, Mhango highlighted easing US inflation and expectations of slower interest rate hikes, which have weakened the dollar and, therefore, contributed to the rand’s strength.
In addition, improving global risk appetite, which is pushing capital back into higher-yielding emerging markets like South Africa is also boosting the local currency.
At the same time, he said stabilising commodity price, especially in platinum group metals, gold and iron ore, are also reinforcing support for the rand’s recovery.
Mhango explained that while a weaker US dollar due to modeating inflation has been a critical driver, South Africa’s domestic signals are becoming increasingly important in shaping market behaviour.
“Investor confidence is strengthening because South Africa is finally showing clearer fiscal direction and meaningful reform momentum,” Mhango said.
“The stabilisation of public debt, improved revenue performance, and a narrowing fiscal deficit signal greater fiscal discipline.”
“At the same time, tangible progress in reducing load-shedding, expanding grid capacity, improving freight logistics, and opening ports and rail to private participation is changing the sentiment narrative.”
He added that the government’s commitment to more than R1 trillion in infrastructure investment over the next three years is further reinforcing confidence in the country’s economic outlook.
These were all factors S&P Global also cited in its decision to upgrade South Africa’s debt rating to BB and maintain the country’s positive outlook.
This upgrade puts South Africa just two steps below investment grade, with the potential for a further lift at S&P’s next review.
South Africa’s positive trajectory can be seen in the rand’s strength, which Mhango said is both a relief and responsibility.
“On the upside, a firmer currency lowers import costs, helps ease inflation, improves foreign dominated debt-servicing conditions, and boosts investor confidence,” he said.
“But sustaining these gains will require South Africa to accelerate reforms in energy, water and logistics, strengthen governance at SOEs and municipalities, and lift the country’s growth potential.”
“Ultimately, the real test is whether a stronger rand can translate into greater industrial competitiveness, job creation and broad-based economic growth.”
In the meantime, he said South African can expect the rand to remain volatile, as it is an inherent feature of emerging market currencies.
However, Mhango said he is cautiously optimistic about the local currency’s medium-term performance, particularly if South Africa can keep its positive momentum going.
“If South Africa maintains fiscal discipline, accelerates infrastructure delivery, and continues improving the ease of doing business, the rand will remain supported,” he said.
“Sustainable currency strength ultimately rests on stronger growth and deeper structural reforms.”
-Daily Investor
