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SA Rand’s Going Strong- What Does This Mean?

Author: Melissa Cohen
Date: 2018-01-17
With the new year upon us, the Rand remained strong since the end of last year. But is this short-lived or will it continue to strengthen?
The South African Rand has strengthened yet again and has continued to fall within the R12.30/$1. This is the third week in a row that the Rand has been below the R12.30 mark.  Many believe that the strong Rand is due to the recent election of the new ANC President, Cyril Ramaposa. We take a look at the reasons for the fluctuating Rand and how it could affect you...
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Rand Fluctuation

Since 2015, the Rand had been unstable weakening to more than R14.50/$1 in November last year. This was a result of President Jacob Zuma's rumoured free education announcement. In December last year, Zuma announced that free higher education will be made available for students who come from households making less than R350 000 a year. This was quickly altered when Ramaposa was sworn in, as the Rand increased by over 10% towards the end of December. According to Head of Wits School of Economics and Business Science Professor Jannie Rossouw, the strong Rand might lower inflation. This could, in turn, encourage the Reserve Bank to drop interest rates.

Petrol Price

Not only does the strong Rand influence the import/export trade, but consumers can breath a sigh of relief. This comes after the petrol price lowers for the first time in months. If the Rand continues to strengthen or even remains the same over the upcoming months, South Africans could expect a further petrol price drop. According to local economist, Mike Schussler, the petrol price is expected to decrease further in the upcoming months.
" We will get another decrease but by April we will see big tax increases on petrol," explains Schussler.
The table below shows the current petrol price decrease:
Product Price : December 2017 Price: January 2017
Unleaded 93 (Coastal) R14.08 R13.79
Unleaded 93 (Inland) R14.49 R14.20
Unleaded 95 (Coastal) R14.27 R13.93
Unleaded 95 (Inland) R14.76 R14.42

How Will This Affect You? 

Besides for the decrease in the petrol price, there are other facts that will be positively affected by the strong Rand. Importing traders will be happy as purchasing items from overseas traders are a lot cheaper. This however, will make exporting goods a lot more expensive.
"The strengthening Rand will impact in the sense that inflation will be slightly lower and that is good for consumers and everybody else," adds the economist.
Along with this, the lower inflation and interest rates will help people with debt repayments. Although the strong Rand will definitely assist consumers and citizens with lower prices, this might be short-lived.
"I think we will see a weaker Rand again in a couple of months or quarters, as we are probably expecting too much from one man. Also the Dollar is weak and Rand has gained much against the dollar but not quite as much against the Euro or Yen. I am worried that the Rand will stay strong for too long, in the sense that the weak commodity prices for Gold and Platinum are also followed on by the strong Rand."

What About The Future? 

Schussler explains that although it is tough to predict the future, the Rand will weaken.
"I know exact predictions are difficult, but I really do not see the Rand under R13 to the dollar for longer than another six months or so."
The longer the Rand stays strong, the worse the repercussions will be on the country.
"We will export less as we cannot compete. We will then steal from other countries because it is cheaper. Even higher tariffs on items such as steel or chickens will not impact as much as the strong Rand at these levels," explains Schussler.
The big issue is that South Africans shouldn't take too much advantage of the strong Rand. They should rather focus on reproduction of their own goods. If President Jacob Zuma is impeached before the end of his term in office, the Rand might go haywire. Nobody knows what will happen, in the meantime, enjoy the decrease in petrol and the possible decrease in inflation.
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