Political/commercial background: Currency

摘要

The rand will continue to benefit from firm commodity prices in 2022, which are being pushed higher by Russia's invasion of Ukraine, but the support arising from global liquidity injections is fading as interest rates rise. Buoyed by commodity trends, the rand appreciated to R15:US$1 in March 2022 on average, a third consecutive month of strengthening-helped by another rise in domestic interest rates-and is on course to gain further ground in April. Being commodity dependent, widely traded and an emerging-market proxy, the rand will remain vulnerable to adverse shifts in global sentiment, such as US monetary tightening, slower growth in China and the unpredictable consequences of the Russian-Ukrainian war. Rand volatility will persist, marked by often large daily movements in response to changing perceptions, although the currency will be shielded by South Africa's modest external debt stock and healthy foreign-exchange reserves, which benefited from an IMF special drawing rights injection of US$4.2bn in August 2021 and a US$750m World Bank loan in January 2022. EIU's forecast assumes the resumption of gradual annual depreciation in 2022, but the annual average rate will be mildly stronger, at R15.5:US$1, and the year-end rate will be at R16.14:US$1. We expect a further steady decline to R18.19:US$1 at end-2026, although the pace of depreciation will be close to the inflation rate, implying a relatively stable real effective exchange rate.