If you’ve noticed the rand tumbling to a new low against the dollar, don’t panic—it’s not all doom and gloom (well, mostly not). The rand has dropped 7% in just a month, breaking through R19.10 to the dollar. While some of this can be chalked up to a stronger dollar, local issues are the real culprit, according to Stanlib’s economist Kevin Lings. About 80% of this rand plunge comes from South Africa’s own economic struggles.
The Dollar’s Stronghold
Sure, the US dollar is flexing its muscles. The US Federal Reserve’s recent decision not to cut interest rates as much as expected is helping it hold steady. Throw in a bit of Trump-induced uncertainty and voilà, the dollar stays strong. But, as Lings points out, while the US dollar is part of the problem, it’s not the main reason we’re in the currency dump.
It’s Our Own Fault (Sort of)
The rand’s weakness is mostly homegrown. Lings highlights that South Africa’s economy is heavily reliant on commodities, and with China struggling to ramp up its growth, demand for our goods is lower. To make matters worse, South Africa doesn’t really have a “growth story” to show off to the world. We’ve been flicking the light switch on, but not much has changed.
Also, let’s not forget the constant outflow of foreign investment—19 months of people selling off SA equities is not exactly a ringing endorsement for our economy.
What’s Next for the Rand?
Looking ahead, Lings sees the rand at around R17.80 to R17.90 as a fair value. But it’s unlikely to stay there. In fact, he reckons the rand is undervalued at the moment and prone to big swings. For the rand to strengthen to a more favourable R16, we’ll need to see South Africa showing clear signs of a turnaround in policy and investment.
In short, we’ll need to show the world that we’re not just “flicking switches” but making real progress—then maybe the rand will get a bit of a lift. Until then, expect the rand to stay on the rocky side of R19.
Source Info: https://www.moneyweb.co.za/news/economy/tumbling-rand-has-a-lot-to-do-with-sas-weak-growth-story/