Rand Hits 13-Month High on SA Economic Optimism, Rate-Cut Expectations
TLDR
- South African rand reaches 13-month high, climbing 0.8% to 17.6069 per dollar, strongest level since July 2023
- Rand's rally attributed to positive sentiment post May 29 election leading to coalition, hopes for economic reforms
- Investor interest grows with easing electricity outages, Federal Reserve interest rate cut expectations, $930 million flowing into country's debt market
The South African rand reached a 13-month high on Friday, climbing 0.8% to 17.6069 per dollar, its strongest level since July 2023. This marks a 4.3% gain for the currency in 2024, the best performance among emerging markets after Malaysia’s ringgit, per Bloomberg.
The rand's rally follows positive sentiment around South Africa’s economic prospects after the May 29 election led to a coalition between the African National Congress and the Democratic Alliance, raising hopes for economic reforms.
In addition, easing electricity outages and expectations of Federal Reserve interest rate cuts are attracting investors to South African assets, with 16.4 billion rand ($930 million) flowing into the country’s debt market in the past five days.
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Key Takeaways
The rand's rise is underpinned by improved economic conditions in South Africa, including a potential end to load-shedding and expectations of disinflation. The currency is also benefiting from anticipated rate cuts by the Federal Reserve, which makes South African assets, especially rand bonds, more attractive. The SARB forecasts economic growth of 1.1% in 2024 and 1.5% in 2025, with inflation expected to slow, which could lead to further interest rate cuts and sustained investor interest in the rand. This positive outlook for South African assets is bolstered by ongoing fiscal consolidation under the new government, reducing downside risks.
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