South African Rand: First Back-to-Back Rate Hike Since 2009

South Africa’s fiat currency plummeted to a record low of 19.7640 against the U.S. dollar on May 25, shortly after the South African Reserve Bank raised interest rates to their highest level since 2009. Although the currency has since recovered, forecast models suggest the rand will break above 20 Rand/dollar soon.

South Africa's currency, the rand, fell to a new level of 19.7640 against the dollar on May 25 — shortly after the country's central bank raised interest rates to 8.25%, while today, on June 5, it’s trading at around 19.40. The rand's most recent plunge came about two weeks after the currency fell to a then-new all-time low of 19.51 rand per dollar.

The May 12 plunge in the rand came after the United States accused South Africa of supplying some military equipment to Russia. The allegations have raised concerns that the U.S. could block South Africa's access to the preferred duty-free market under the African Growth and Opportunity Act (AGOA).

In addition to the U.S. allegations, South Africa's economy has been hammered by mounting power shortages and rising inflation. To stem the downturn, the South African Reserve Bank (SARB), like many of its peers, has implemented an aggressive monetary policy and has now achieved what it calls the first consecutive 50% banknote. Basis point hikes since 2009. The latest hike brings the cumulative rate hikes since November 2021 to 475 basis points.