South Africa: Contagion from Turkey's lira crisis hits rand in August
August 17, 2018
Amid the ongoing crisis in Turkey, the selloff in emerging markets (EM) continued into August as contagion from the freefall of the lira spread to other EM currencies. On 17 August, the rand traded at 14.78 per U.S. dollar, shedding 11.8% from the same day a month earlier. Moreover, the rand has weakened 19.4% against the dollar since the beginning of the year amid the global risk-off.
Although rising U.S. bond yields and weak growth prospects have kept the rand under pressure in recent months, the currency’s recent nosedive was primarily driven by contagion over the lira crisis. Given South Africa’s fondness for dollar-denominated debt, investors were quick to tie the rand’s fortunes to those of Turkey’s lira. Meanwhile, growth across Africa’s most-developed economy has been sluggish this year despite early hopes of “Ramaphoria”, and the SARB has been hesitant to hike rates in an effort to spur economic activity—stifling the rand and leaving inflation unchecked.
South Africa Exchange Rate Forecast
Looking ahead, the rand is expected to recover somewhat by the end of the year with firm economic fundamentals cushioning further losses. FocusEconomics analysts see the ZAR trading at 13.27 per USD at the end of 2018 and 13.06 per USD at the end of 2019.
Author: Christopher Thomas, Economist