South Africa's rand on the slide

published 3 October 2014

After a breather lasting a few months, the South African rand has resumed its slide against the dollar. It has now lost 13% against the greenback this year, and is close to a five-year low around R11. Don't expect a sustained recovery any time soon.

"The great dollar rally of 2014 drives everything before it," says John Cairns of Rand Merchant Bank. Higher US interest rates mean that liquidity leaves risky emerging economies and heads back to the US.

That's especially awkward for states with large external, or current account, deficits: these must be covered with foreign capital. South Africa's current-account deficit has reached 6.2% of GDP. Jitters over higher US interest rates caused rand weakness last year and in early 2014.

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But there are other factors weighing on the rand, says the FT's Andrew England. The economy's momentum has sagged amid reduced demand for commodities and strikes in the mining sector. So there is scant scope for higher interest rates to entice foreign money back into the economy.

Uncertainty over the identity of the next governor of the central bank, the South African Reserve Bank, and whether he or she might be susceptible to political interference, isn't helping either. The rand sell-off is set to continue.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.