BER Currency News

BER Home/s

  1. Home
  2. Currency News
  3. A Weak Rand Won’t Be Helped by Further Rate Cuts; Rand Volatility to Climb

A Weak Rand Won’t Be Helped by Further Rate Cuts; Rand Volatility to Climb


The South African rand is suffering.

The rand’s marginal gains on Wednesday against the FX majors did little to mask what has been a horrible month for the currency.

Since September 6th, the rand has weakened by 7.6%, 6.3%, 5.0% and 4.2% against the pound (R.18.0), US dollar (R.13.6), euro (R.16.0) and Australian dollar (R.10.65) respectively, falling against each to long-term lows in the process. And the rand might not be done yet; not if the South African Reserve Bank lower interest rates in the coming months – an eventuality that wasn’t ruled out by the bank at its Monetary Policy Review on Wednesday.

“With near-zero growth and a negative output gap, there is some limited scope for lower interest rates to have positive counter-cyclical effects,” the bank said.

Economic growth in South Africa continues to be forecast by the bank at just 0.6% for 2017 and 1.2% for 2018. Inflation, on the other hand, has averaged 5.53% this year, which limits the Reserve Bank’s ability to lower the cost of borrowing in order to boost growth.

On interest rates, the Reserve Bank has done a good job of baffling investors in recent months. Following a completely unexpected rate cut in July – rates were dropped by a quarter-point to 6.75% – the bank surprised again in September when it left rates on hold. Prior to September’s meeting, seventeen of twenty-five economists polled by Reuters had predicted another quarter-point cut.

The powers that be in South Africa have been heavily criticized by the “big three” ratings agencies this year for interfering in monetary policy.

In July, Moody’s said that there was “growing political pressure for less independent monetary policy [in South Africa].” The agency went on to suggest that July’s shock rate cut was the result of political pressure being placed on the Reserve Bank, rather than being an act of economic wisdom.

In April, after South African president Jacob Zuma replaced well-respected finance minister Pravin Gordhan with Malusi Gigaba – a man seemingly unqualified for the role – Standard & Poor’s said that “the executive changes…have put at risk [South Africa’s] fiscal and growth outcomes.”

Fitch were equally critical, saying that “recent political events would weaken standards of governance and public finances.”

The agencies of course “walked the walk” by downgrading South Africa’s credit ratings. In April, Standard & Poor’s and Fitch both dropped the country to sub-investment grade – more commonly known as “junk.” Moody’s went one grade higher in June to Baa3 but assigned a negative outlook.

Such is the apparent political interference in South Africa that in August, the governor of the Reserve Bank, Lesetja Kganyago, went to South Africa’s High Court to challenge a proposal by the state ombudsman to have the bank’s mandate changed. The ombudsman had proposed that the bank place more emphasis on the “socio-economic well-being of citizens” when forming monetary policy, rather than measures of inflation, which central banks typically focus on. The court sided with the Reserve Bank.


Rand Forecasts

While up-to-date price forecasts for the rand are thin on the ground – a Reuters poll of forty-five strategists in August produced a median-estimate of R.13.5 per US dollar by January’s end – what is very clear is that investors are expecting rand volatility to pick up ahead of December’s leadership contest of the ruling African National Congress party.

Implied three-month volatility in rand FX options has climbed this week to a six-month high of 17.2%, from levels close to 14% one month ago.


Readers can change money into or from South African rand at the best possible exchange rates by using BER’s exchange rate comparison calculators for ZAR travel money and ZAR foreign currency transfers.

Joel Wright Author: Joel Wright

Joel has been involved in the markets for the past 10 years. During that time he’s worked in market analysis teams in London, in the financial technology sector in Singapore – working mostly with automated trading tools and algorithms – and most recently he’s been planning FX risk hedging for an SME in Bangkok. Joel has a first-class honours degree in Financial Services and currently writes about foreign exchange for several global businesses.

You can get in touch with Joel via email here or via the contact page.
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product. Full Disclaimer

BER logo Best Exchange Rates - We make it Easy to Compare Exchange Rates & Fees of Banks and Currency Exchange & Payment Providers

Level 2, 50 Bridge St, Sydney NSW 2000.

Disclaimer | Copyright | Privacy Statement


Best Exchange Rates is an information only service. By browsing on the website, using our comparison tools or FX provider referral service, you are asking Best Exchange Rates to provide you with information about currency exchange products & services from multiple financial institutions.

We will try to show you a range of products & services in response to your request for information. The search results do not include all providers and may not compare all features relevant to you. In giving you product information we are not making any suggestion or recommendation to you about a particular product.

If you decide to conduct foreign exchange you will deal directly with a financial institution, and not with Best Exchange Rates. Rates and product information should be confirmed with the relevant financial institution, see our terms of use for further details.

Best Exchange Rates may receive fees or other benefits in relation to activity on the Best Exchange Rates website. Best Exchange Rates may receive remuneration for vendor referral links. Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.

Read our Full Terms of Service


This website and its contents are the copyright of BEST EXCHANGE RATES PTY LTD © 2009-17. All rights reserved.

Any redistribution or reproduction of part or all of the contents in any form is prohibited other than the following. You may print or download contents to a local hard disk for your personal and non-commercial use only. You may copy some extracts only to individual third parties for their personal use, but only if you acknowledge the website as the source of the material.

You may not, except with our express written permission, distribute or commercially exploit the content. You may not transmit it or store it on any other website or other form of electronic retrieval system.

For more details or request distribution right please contacxt us here.