The rand has posted the sharpest decline among major emerging market currencies over the past week, sliding more than 6% against the dollar as a wave of global and local pressure unnerves investors.
The rand slumped to an intraday weakest level of R19.64/$ in late Monday trade, according to Iress data, marking its weakest level since 2023. By early evening it had fallen 2.6% to R19.65/$.
The currency’s underperformance follows a week of escalating global trade tension and renewed political instability at home. Markets were rattled last week after US President Donald Trump announced sweeping tariff hikes of about 30% on all SA imports, with the possible fallout from the government of national unity (GNU) further denting investor confidence.
The weakening rand heaps pressure on the GNU, the stability of which is already under scrutiny due to internal discord, as it threatens to undo the Reserve Bank’s fight against inflation, which affects the poor disproportionately while interest rates have started to fall.
Investec chief economist Annabel Bishop said she believed the rand’s depreciation was largely driven by local factors and that without the threat of the DA exiting the GNU, it would be substantially stronger.
“The rand is likely to weaken past its prior weakest point of R20/$ on a DA GNU exit. It is likely to head towards R21/$ immediately and then weaken to beyond R22/$ depending on the new partners of the GNU, with the sudden shock to financial markets, and worries over a left-shift in economic policy.
“The disagreement stemming [from] the VAT increases proposed in both the budgets, and spreading allocations, has grown into a fully fledged political party debate about the constitution of the GNU, creating huge instability.”
The rand’s weakness however was not yet cause for concern on the inflation outlook, said Old Mutual chief economist Johann Els.
“The weaker rand only poses a risk to inflation if it remains at this weaker level, which is unlikely. The oil price fall has been far more substantial than that of the rand. There are still prospects of petrol price cuts at the beginning of May,” Els said.
Other emerging market currencies also fell on the day with the Nigerian naira slipping 3.2%, the Russian rouble 2% and the Mexican peso 0.73%.
On Friday, stronger-than-expected US nonfarm payroll data for March sent the dollar surging, despite a marginal uptick in the US unemployment rate to 4.2%, according to Anchor Asset Management. The greenback’s strength was reinforced by hawkish commentary from Federal Reserve chair Jerome Powell, who suggested that recent tariff hikes could reignite inflation in the US, effectively ruling out imminent rate cuts.
“Local political uncertainty continues to weigh on the rand while a sharp fall in precious metal prices on Friday is also not helping,” said TreasuryONE currency strategist Andre Cilliers.
Citadel chief economist Maarten Ackerman said the depreciation of the rand posed a headwind for import costs, typically placing upward pressure on inflation.
However, this effect had been largely offset by the decline in international oil prices — a critical development, since petroleum products are SA’s largest single import component.
“As a result, the net effect on inflation is close to neutral and there has been no upward revision to the country’s inflation outlook for the year,” he said.
SA’s benchmark R2030 bond weakened last week, with the yield rising 29 basis points to 9.37%. A bigger concern, however, was the longer-dated R2040, which saw its yield rise 50 basis points to 12%, indicating higher borrowing costs for the government for an extended period, something the country can ill afford with its extremely high debt level.
Update: April 7 2025
This story has been updated with new information.
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