Rand to reap carry reward as SA’s political risks fade

Easing political turmoil in South Africa may help turn the rand from this month’s emerging-market pariah into an outperformer next year.

Strategists at Societe Generale SA and Credit Agricole CIB expect the currency to be in a sweet spot next year, given the rand has much in its favour: a healthy interest-rate differential with the dollar, a still-hawkish central bank, and rising demand for South Africa’s commodity exports as China reopens its economy.

“Despite the heightened political uncertainties, we remain positive on the rand,” SocGen strategists including Phoenix Kalen and Marek Drimal wrote in a note. “We expect two more rate hikes by the South African Reserve Bank and expect China’s reopening from zero-Covid will boost sentiment around the rand.”

South Africa’s Reserve Bank is seen lifting its policy rate by at least another 50 basis points to a peak of 7.5% by November next year, according to rates-market pricing.