South African Reserve Bank (SARB) Governor Lesetja Kganyago says the rand is incredibly undervalued, with studies showing that the rand should be around R7 to the dollar. <\/p>\n\n\n\n
Speaking before the Kgalema Motlanthe Foundation Drakensberg Inclusive Growth Forum, Kganyago highlighted that the rand has depreciated over the past two decades. <\/p>\n\n\n\n
Although the governor highlighted the Mundell\u2212Fleming framework, which suggests that currency depreciation should lead to growth, the rand has weakened over the last 10 years, while the economy has weakened. <\/p>\n\n\n\n
\u201cIndeed, back in the late 2000s, it was often argued that South Africa\u2019s real exchange rate was too strong and too volatile. This indicator has since become significantly weaker and less volatile.\u201d <\/p>\n\n\n\n
\u201cIf you consider indicators of purchasing power parity, such as the simple Big Mac Index, you see that for the rand to have the same buying power in the US as it does here, the exchange rate would need to be around 50\u221260% stronger.\u201d <\/p>\n\n\n\n
He added that more sophisticated measures of purchasing power parity, which go beyond simply the cost of a Big Mac, suggest that equal buying power would require an exchange rate close to R7 per dollar.<\/p>\n\n\n\n
This was in reference to the World Bank\u2019s purchasing power parity conversion factors. <\/p>\n\n\n\n
While the World Bank noted that the rand should have traded at R7.4 to the dollar last year, the actual exchange rate was R18.3 to the dollar. <\/p>\n\n\n\n
The governor explained that the missing growth relationship of the currency may reflect larger developments in the country, in a similar way that a share price reflects the health of a company. <\/p>\n\n\n\n
\u201cIf a country looks good, investors are impressed, and the currency appreciates. By the same token, if they lose confidence, they sell.\u201d <\/p>\n\n\n\n
\u201cWhen you have good news stories, such as structural reforms, fiscal discipline and effective governance, you get growth, and at the same time you get currency gains.\u201d <\/p>\n\n\n\n
\u201cWhen you have bad news stories, such as state capture, unsustainable debt growth and junk status, growth weakens and the currency follows suit.\u201d <\/p>\n\n\n\n
On top of this, he noted that growth also benefits from imports and exports. <\/p>\n\n\n\n
He noted that many exporters will still import components, with capital goods for investments also often imported.\u00a0<\/p>\n\n\n\n
\u201cThis may help explain why many emerging markets tend to invest more when their currencies are stronger, and this extra investment raises growth,\u201d he said. <\/p>\n\n\n\n
\u201cThat does not mean you should aim for the strongest exchange rate possible, of course. But it does suggest a balanced approach that also considers the benefits of imports.\u201d <\/p>\n\n\n\n
![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2025\/05\/Lesetja-Kganyago.jpg\")
<\/a>