South Africa's Rand Gains Ground as a Key Player Among Emerging Market Currencies -

In a notable achievement since 2016, South Africa’s rand has earned a place among the top five emerging-market currencies for this year, with analysts from Credit Agricole SA and Ashmore Group Plc indicating that additional advancements could be forthcoming.

A significant drop in December led to the rand erasing its year-to-date gains, resulting in an estimated 2% decline for 2024, a year where only three emerging-market currencies showed any upward movement.

Read: Rand poised for a rebound

This places the rand in fifth position, following the Malaysian ringgit, Hong Kong dollar, Thai baht, and Peruvian sol among the 24 key developing-market currencies tracked by Bloomberg.

Emerging market currencies have encountered difficulties in 2024, as robust US economic growth has strengthened the dollar.

Nonetheless, the rand’s relative strength is backed by heightened investment levels, reduced inflation, and ongoing structural reforms, coupled with a cautious central bank that maintains an attractive interest-rate premium compared to the US dollar.

“The appeal of South Africa’s carry trade remains strong, as inflation and expectations are well-controlled,” remarked Sebastien Barbé, head of EM research and strategy at Credit Agricole, referring to the strategy where investors borrow dollars to invest in higher-yielding currencies.

Read: Dollar eyes best year in almost a decade

According to Bloomberg’s projections, the rand is expected to provide a total return of 15% for 2025, factoring in anticipated interest rates and currency movements.

Credit Agricole predicts an exchange rate of 16.40 rand per dollar by the end of 2025, suggesting a possible gain of around 13% from its current level, a more optimistic outlook than the median estimate of 18.07 from a Bloomberg analyst survey.

As of 10:11 a.m. in Johannesburg, the rand appreciated by 0.5%, reaching 18.7097 per dollar.

Credit Agricole reports that fixed-investment project values in South Africa have surged to R794 billion in 2024, an increase from R193 billion in 2023.

This increase coincides with progress in infrastructure and energy reforms, particularly through public-private partnerships at the country’s largest port. Additionally, initiatives by electricity provider Eskom Holdings SOC Ltd. to minimize service interruptions have contributed to economic growth.

Annual inflation rose slightly to 2.9% in November but remains at its lowest level in over a decade, comfortably fitting within the central bank’s target range of 3% to 6%. Expectations for inflation over the next year have dropped to 4.6%, as reported by the Bureau for Economic Research, providing the South African Reserve Bank (Sarb) with some leeway to lower interest rates.

Since September, the Sarb has already cut borrowing costs by 50 basis points, with market forecasts suggesting another reduction may occur in early 2025.

Improvements in infrastructure are projected to further benefit both the nation and its currency, according to Gustavo Medeiros, deputy head of research at Ashmore. “Logistic reforms and a notable resurgence in tourism inflows are driving tangible growth and foreign exchange benefits,” he noted.

Moreover, inflows into South Africa’s bond market are expected to reach their highest level since 2019, based on data from JSE Ltd. Non-residents’ net purchases of local debt amounted to 41.4 billion rand in the third quarter, a substantial increase from 13 billion rand in the preceding three months, as reported by the central bank, which highlighted that the economy is currently in its longest upward cycle since 1999.

“South Africa is showcasing its ability to maintain robust fundamentals,” stated Credit Agricole’s Barbé. “The data reflects a strong foundation for ongoing growth into 2025.”

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