The rand took another hit against the US dollar on Monday night, with analysts warning that worse is still to come.
The currency dipped as low as R17.91 to the dollar as Asian markets continued abandoning the rand, before pulling back to a level around R16.65 at the close of the local market.
This is the second time the rand has spiked in this manner, having hit R17.99 to the dollar as Asian markets opened late Sunday night local time.
In early trade on Tuesday (12 January) the rand settled once again to a new record low of R16.86.
The rand’s weakness, while currently being beaten around by the Japanese and Chinese markets, has been exacerbated by president Jacob Zuma’s controversial decisions and comments over the past month.
Zuma infamously sacked Nene in December 2015, replacing him with unknown ANC back-seater, David van Rooyen. This led to a collapse in the market, pushing the rand to record lows against the dollar.
Following emergency meetings with senior ANC leadership and the South African banking sector, Zuma back-tracked and replaced Van Rooyen with former finance minister Pravin Gordhan three days later.
Zuma called the market reaction – and the reaction from politicians, business leaders and South African citizen – an “overreaction”.
No end in sight
According to analysts from various banking groups, the rand is in for a tough time as there is no sustainable recovery expected for a long time.
Analysts from Standard Bank said that the rand is likely to hit the R17.50 level, while any recoveries will be short-lived as investors shun developing nations.
Economist Mike Schussler from Economists.co.za sketched a grim scenario for the South African economy should the rand lose 20% from its value against the greenback in 2016.
Last year the rand gave up 25.9% of its value.
“If the rand should fall just another 20% over the next year, by the beginning of 2017 a dollar would cost R20. That R20/$ is on the cards so quickly is frightening for the country,” he said.
Wichard Cilliers, director and chief dealer at treasury services company TreasuryOne, said that the current economic climate will likely lead to a hike in interest rates.