3 scenarios for the rand in South Africa – and where it’s heading for the rest of 2022

Professional services firm PwC has published its latest economic outlook for South Africa, including forecast scenarios for where the rand is heading in the remainder of 2022.

The rand traded weaker during the second quarter, depreciating at times to above R16.00/$ in May and June. The rand was pressured by several factors, including:

  • Risk-off sentiment due to the fallout from the Ukraine situation;
  • A sharp rise in US interest rates supporting the dollar;
  • Domestic economic challenges like load shedding and flooding in KwaZulu Natal.

“The key international factor currently driving global financial markets is the fallout from the Russian invasion of Ukraine,” PwC said.

“The two countries are significant players in the world food and energy markets, accounting for 70% of global sunflower exports, a third of potassic fertiliser exports, a quarter of wheat exports, and 12% of crude oil shipments.”

Ukraine is also home to a quarter of the world’s super fertile chernozem (black) soil and exports enough food annually to feed 400 million people.


Baseline scenario (50% probability)

Under PwC’s baseline scenario, European Union (EU) and North Atlantic Treaty Organisation (NATO) countries are not directly drawn into the conflict. However, they continue to provide indirect military assistance to Ukraine, i.e. defensive weapons and ammunition, intelligence and other forms of military aid.

Current sanctions imposed on Russia remain in place and no further significant sanctions are imposed. From a military perspective, the Russian military advance largely stalls, and a possible stalemate sees the conflict continuing for some time.

Under this scenario, as the associated impacts on global markets, PwC expect the rand to average R15.50/dollar this year and R16.05/dollar in 2023.


Downside scenario (30% probability)

PwC’s downside scenario contains the same outlook for EU and NATO involvement: member countries are not directly drawn into the conflict but continue to provide indirect military assistance to Ukraine.

However, from a military perspective, the Russian military advance continues from the current situation in the east of Ukraine. In response, Russia is ejected from the World Trade Organisation (WTO) and all the country’s banks are cut off from the SWIFT global payments messaging network.

The US and EU stop importing the vast majority of Russian natural gas and some of this demand is replenished by supplies from Saudi Arabia, the US, Qatar, and Azerbaijan. Overall, this is a deteriorated situation from the present and promises to disrupt global commodity markets with greater intensity over a longer period.

It is possible that the oil price which in early June touched $130/barrel increases to $150/barrel.

Under this scenario, and the associated impacts on global financial markets, PwC expects the rand to average R15.97/dollar this year and R16.69/dollar in 2023.


Upside scenario (20% probability)

PwC’s upside scenario assumes a diplomatic resolution that significantly reduces military conflict in Ukraine and allows the resumption of a meaningful volume of the country’s soft commodity exports.

Under this scenario, as the associated positive impacts on global markets, we expect the rand to average R15.04/dollar this year and R15.41/dollar in 2023.


Read: Big price hikes hitting South Africa this week

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3 scenarios for the rand in South Africa – and where it’s heading for the rest of 2022