Win for the rand and petrol prices in South Africa

The South African rand has strengthened against a weakening dollar, which spells good news for fuel price recoveries and petrol prices in July.

The local unit hit R17.68 against the dollar at the end of last week, before climbing back to R17.70 on Monday.

This is an overall stronger position than recent sessions, primarily driven by weakness in the greenback, rather than any local strength.

According to Investec chief economist Annabel Bishop, the rand has in fact weakened against the Euro and the Pound, showing that it’s more reflective of US-based dynamics.

Bishop noted that dollar weakness has been driven by the volatility in US tariffs and uncertainty for the US economy and so global growth.

The US hiked tariffs steeply in April, then paused or rolled them back, then re-embarked on tariff increases again in May/June.

“While the worst of the US’s (April) Liberation Day tariffs have been paused and renegotiated, with the aim to roll them back in the main after re-ordering international trade, concerns persist over the impact on sentiment and economic growth,” Bishop said.

This has caused material policy volatility, negatively impacting investor sentiment, adding to the dollar’s weakness.

On the other hand, it has boosted emerging markets and commodity currencies like the rand, which have strengthened against the dollar as a result.

“The rand’s strength against the US dollar this year has contributed significantly towards lower inflation in South Africa, with US dollar-based petroleum and agricultural products key drivers of local inflation outcomes, along with base effects,” Bishop said.

The OECD economic outlook this month for South Africa expects inflation will fall in the near term following the decline in global oil prices but will strengthen during the second half of 2025 and in 2026, as activity strengthens.

However, high uncertainty and declining confidence will weigh on domestic demand, though easing monetary policy will provide support.

Meanwhile, the US dollar is expected to see further weakness this year, which would add to the rand’s strength.

Notably, a stronger rand spells good news for motorists, as another petrol price cut is expected in the coming month, Bishop noted.

South Africa’s growth problem

Despite the rand’s strength against the US dollar, the local currency remains constrained by South Africa’s domestic problems, like persistently low growth

Bishop previously flagged South Africa’s stagnating economy as one of the key reasons the rand is struggling to hit its fair-value levels of R16 to the dollar.

The OECD economic outlook just added to these concerns by presenting a similar review of the country’s economy.

The group said that South Africa desperately needs economic reforms so that it can set itself on the path of economic growth.

With many analysts and economists anticipating 1% GDP growth for 2025, South Africa simply cannot keep up with peer countries or its own population growth.

“Swiftly implementing reforms would support fiscal consolidation and investment. Easing burdensome licensing, permits and complex procurement rules will support firm entry and expansion,” the OECD said.

“Continued progress in reforms to improve the efficiency and governance of state-owned enterprises, to increase the supply of electricity, and to ease logistics bottlenecks and regulation will support investment and stronger potential growth.”

Bishop noted that South Africa’s domestic freight crisis has been a key contributor to weak economic growth, with the first quarter of the year essentially stalling, at 0.1%.

Key detractors were mining, manufacturing and electricity production as the ongoing incapacity at Transnet severely limits growth, without which estimates show economic growth would be around 3.0% y/y instead.

Coming out this week, April’s mining and manufacturing production numbers will give the first readings for industrial production in the second quarter, with risks to the downside, Bishop said.