The truth behind the stronger rand

The rand has remained remarkably stable during what has been a fairly chaotic first quarter of 2025, but economists warn that this doesn’t reflect that all is well in South Africa.

Despite global market turmoil and local uncertainty around the 2025 budget, the rand has remained stable, even strengthening against the dollar after tanking at the end of 2024.

This has caused some confusion among South Africans, who are more accustomed to the local unit taking a hit during times of volatility.

While it is still a far stretch from the near-R17 to the dollar levels seen after the formation of the Government of National Unity (GNU) and before US President Donald Trump was elected in November 2024, the rand has been relatively stable around the R18.20/$ levels this year.

It has remained firm in the face of Trump’s trade war with US allies, direct attacks on South African policies from Washington, executive orders pulling US funding from the country, the return of load shedding, and infighting among the GNU over the 2025 budget.

According to the Bureau for Economic Research (BER), while this may seem like an anomaly, it aligns with global trends.

The group noted that many currencies—especially emerging market currencies like the rand—have been doing better against the US dollar since the start of the year.

This is because of the “weak dollar” story that has played out as global investors adjust their expectations around US monetary policy and the US economy, which is highly uncertain.

Importantly, “while the rand looks strong, this isn’t necessarily a reflection of South Africa’s economic health,” the BER said.

“In fact, South Africa’s risk premium has been climbing steadily since mid-December, and recent surges in 10-year bonds signal that investors remain cautious.”

South Africa’s relatively high interest rates also make the rand an attractive currency for yield-seeking investors, the BER said—and this looks to remain the case as the Reserve Bank is expected to cut rates less than the US Fed.

The Reserve Bank’s Monetary Policy Committee is expected to announce its latest interest rate move on Thursday (20 March), with many expecting a hold on rates.

But these positives for the rand won’t last forever, with the BER projecting a depreciating trend to hit by 2026 as inflation, interest rate differentials and external account pressures start to land.

What is really driving the rand

The BER said the ultimate story for the rand in 2025 is that it’s a tale being told outside of South Africa.

The driving force of the local currency is sitting in the US and in global markets, where South Africa is an almost passive benefactor.

The economists noted that South Africa has historically benefitted from certain types of global crises, especially those that drive up commodity prices.

“During periods of global uncertainty, investors flock to gold as a safe-haven asset. This, in turn, boosts South Africa’s mining sector,” the BER said.

This creates a positive feedback loop, increasing export revenue and generating higher tax receipts.

While South Africa’s mining sector is in decline, gold still plays a big role in the economy.

Gold miners, like Harmony Gold, are a testament to this, with the group seeing dold revenue for the six month period ending December 2024 increasing by 19%.

The rise in gold prices can act as an economic buffer against potential crises like political instability, higher inflation or budget shortfalls for a time, the BER said.

It also boosts investment and investor sentiment. However, this are short-term benefits, and the long-term reality will eventually set in.

As such, the BER warned that South Africa’s economy is in a delicate balance, with the performance of the rand, gold prices and geopolitical dynamics all pushing and pulling at once.

The economists said that the country needs to ensure sound policies and long-term growth strategies are in place to ensure that South Africa can weather the storms and not be subject to volatile external forces.

“Structural reforms, diversification of trade partners, and strategic investments in sectors beyond gold will be essential for ensuring that South Africa can build resilience in a rapidly changing global landscape,” it said.