R15-plus to the dollar to become the new normal in 2022: Nedbank

 ·2 Nov 2021

Over the past two months, the rand drifted lower, hurt by choppy risk sentiment, softer commodity prices, and the widely expected tapering of US bond purchases, says Nedbank.

The growing divergence between South Africa’s interest rates, which remains steady near 56-year lows, and those of other emerging market economies (EMEs), which have raised interest rates significantly, also weighed on the rand, the bank said in a research note on Tuesday (2 November).

“Global risk sentiment will probably become even more volatile, sensitive to the threat posed by a mutating virus, higher inflation and the shifts in international monetary policies. These uncertainties are likely to subdue risk appetites for emerging market assets, weighing on the rand,” it said.

“Commodity prospects also appear murkier as China faces more significant downside risks from the weakness in its property market and the drive to shift its economy towards higher value-added manufacturing and services. We, therefore, expect the rand to depreciate during the rest of this year, followed by more significant weakness in 2022.”

The bank forecasts that the local unit will likely trade towards the R15.45/dollar mark towards the end of 2021, holding similar levels for most of 2022. Similar weakening is expected against the pound and euro, however not to the same extent as the greenback.

The table below shows the monthly exchange rate forecasts for the coming months by Nedbank’s group economic unit.


At 14h00 on Tuesday (2 November), the rand was trading at the following levels again the major currencies:

  • Dollar/Rand: R15.43
  • Pound/Rand: R21.07
  • Euro/Rand: R17.90

A fourth wave 

South Africa’s recovery from the depths of strict lockdown has been faster and stronger than most analysts expected, Nedbank said.

“This momentum carried through into the first half of the year, with real GDP up 7.5% y-o-y. In its latest Monetary Policy Review, the South African Reserve Bank (SARB) described the recovery as ‘unusually strong’, with nominal GDP just 1.1 percentage points (ppts) short of its pre-pandemic level by the end of Q2.

“However, the long 3rd wave of Covid infections, tighter lockdowns, social unrest, and cyberattacks on Transnet derailed the recovery in July.”

Output and sales plummeted in most sectors, with the sharpest drops occurring in hotels and accommodation, restaurants and catering, vehicle sales and retail sales.

Since then, trading conditions improved, the 3rd wave ebbed, the government gradually eased health restrictions down to alert level 1 on 1 October, and some companies started to restore operations damaged by the riots, Nedbank said.

“The economy should return to growth in Q4, depending on Covid cases and lockdown rules. So far in October, new Covid cases have fallen to low levels, last seen around May 2020 in the build-up to the 1st wave, and the positivity rate of Covid tests is hovering below 2%.”

While levels 3 and 4 restrictions undoubtedly helped to reduce transmissions, higher vaccinations probably also contributed, the bank said.

“While experts predict a fourth wave around December, higher vaccination rates among the most vulnerable population should translate into fewer hospitalisations and lower fatalities, hopefully reducing the need for strict lockdowns.

“So, even with a fourth wave, economic activity should expand further in the final quarter. Altogether, the economy is forecast to post growth of 5.3% in 2021 – a relatively strong albeit not complete rebound from the 6.4% contraction in 2020.”

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