Renowned economist Dawie Roodt said the rand will hit R25 to the US dollar in the next two years as South Africa’s poor economic performance will continue and the government pressures the Reserve Bank to loosen monetary policy.

Chief economist at Efficient Group, Roodt is an award-winning economist and a foremost expert in South African financial matters, having experience at institutions such as the Reserve Bank.

He has accurately predicted many economic developments in South Africa and is highly regarded in the financial field.

Roodt said while the rand is unlikely to weaken immediately, it will depreciate significantly in the medium to long term.

“I think in two years, we are going to see the rand at R25 to the dollar. It is not that far off that number already. It only needs to depreciate by around 25% to hit R25 to the dollar,” Roodt said.

He warned that the rand may weaken further to R30 to the dollar in the next two to three years.

“So, maybe R25 to the dollar or maybe even R30 to the dollar in two years’ time. The currency will be much weaker.”

Three main forces drive the rand’s depreciation:

• The country’s vulnerability to external shocks.

• Increased pressure on the Reserve Bank to loosen monetary policy.

• The myriad structural problems in South Africa.

The South African economy is highly exposed to external shocks as it is a very open economy, with 68% of its GDP coming from imports and exports.

This means any deterioration in global economic performance or conditions will likely significantly impact the country’s economy.

Furthermore, this vulnerability is compounded by the country’s lacklustre economic growth and its poor state finances.

“We are so vulnerable in terms of finances that we will not be able to withstand any significant external shock,” Roodt said.

Internal factors are equally important, particularly the growing pressure on the South African Reserve Bank (SARB) from politicians to loosen monetary policy.

Roodt explained that the government is in really deep trouble regarding its finances, with its debt pile and interest payments growing significantly in 2023.

Thus, the government wants to keep inflation high as it does not only erode the value of capital but also the value of debt. So, it will likely pressure the SARB to loosen its monetary policy.

Other internal factors contributing to the rand’s weakening are structural economic issues such as load-shedding and deteriorating logistics.

“Over the next five years, we will have more of the ANC’s mismanagement, and only when we get rid of the ANC can we start looking forward to some improvements,” Roodt said.

SOURCE:Rand will hit R25/USD in two years – Dawie Roodt – Daily Investor