For the first time since 2016, South Africa’s rand has landed among the five best-performing emerging-market currencies, holding its ground amid turbulent global markets.
Despite a late-year slip, the currency’s resilience has been driven by rising investment, structural reforms, and controlled inflation, with analysts predicting further gains in 2025.
Currency Performance
In 2024, emerging-market currencies struggled, with only three advancing against a robust US dollar fueled by strong economic growth. Among these, the South African rand secured the fifth spot behind the Malaysian ringgit, Hong Kong dollar, Thai baht, and Peruvian sol.
The rand faced a 2% decline for the year, following a sharp retreat in December. However, its relative strength highlights its appeal among global investors.
Key Drivers
The rand’s 2024 performance was underpinned by several factors:
- Investment Surge: Fixed investment projects in South Africa reached 794 billion rand ($42 billion) in 2024, up from 193 billion rand in 2023. Infrastructure and energy reforms, including public-private partnerships at major ports and improvements in electricity reliability from Eskom, played a key role.
- Inflation Control: Annual inflation remained at 2.9% in November 2024, the lowest in over a decade and well within the South African Reserve Bank’s (SARB) target of 3% to 6%. Inflation expectations for 2025 stand at 4.6%, creating room for further interest rate cuts.
- Bond Market Inflows: South Africa’s bond market saw its highest inflows since 2019, with net non-resident purchases of local debt totaling 41.4 billion rand in Q3, up from 13 billion rand in Q2.
Forecasts
Looking ahead, analysts see the rand’s carry trade appeal remaining strong. Carry trades involve borrowing in lower-yielding currencies like the US dollar to invest in higher-yielding ones like the rand.
- Credit Agricole’s Bullish Forecast: Credit Agricole projects the rand to reach 16.40 per dollar by the end of 2025, implying a 13% gain from its current level of 18.7097. This projection is more optimistic than the Bloomberg median of 18.07.
- Total Return Potential: Bloomberg calculations estimate the rand’s total return for 2025 at 15%, driven by favorable interest rates and exchange-rate dynamics.
Structural Reforms
South Africa’s economic reforms are laying the groundwork for continued progress:
- Infrastructure Growth: Upgrades to logistics, such as port partnerships, and a recovery in tourism inflows are creating tangible economic benefits.
- Energy Stability: Reduced electricity disruptions from Eskom have bolstered economic activity, further boosting investor confidence.
- Policy Stability: With inflation under control, the SARB has room to lower rates further, making the rand an attractive option for investors seeking higher yields.
Significant
The South African rand has proven its resilience, placing it among the top-performing emerging-market currencies in 2024. With strong fundamentals, rising investment, and structural reforms driving momentum, the currency is well-positioned for continued gains in 2025.
While challenges remain, South Africa’s economic outlook is increasingly optimistic, making its currency a standout performer in the developing world.
SOURCE – LINK
FAQs
Why did the rand perform well in 2024?
Rising investment, inflation control, and structural reforms drove its performance.
What is the forecast for the rand in 2025?
Credit Agricole predicts a 13% gain, reaching 16.40 per dollar by year-end.
How has South Africa attracted bond market inflows?
Improved infrastructure, energy reforms, and economic stability boosted investor confidence.
What is the expected total return for the rand in 2025?
The rand is forecasted to deliver a 15% total return based on interest rates and exchange values.
What role does inflation play in the rand’s outlook?
Low inflation provides room for rate cuts, enhancing the rand’s carry trade appeal.
