This is where the rand could be heading in 2023

January 17, 2023

Barring any black swan events and other market shocks, the rand has the potential to strengthen further in 2023, and could see a period of relative stability, says Investec.

In a note published this week, Investec chief economist Annabel Bishop laid out the banking group’s baseline, upside and downside scenarios for South Africa over 2023/24, including forecasts for the rand.

The group’s baseline (most likely) scenario for the country points to relative stability for the rand with the potential for further strength during the course of the year.

However, from the best case to the worst-case scenario laid out by the bank, probabilities are weighted in favour of the downside – indicating that there is more room for things to go wrong in the country than right.

The rand

The rand strengthened against major currencies over the last week, attempting to consolidate below the R17.00 to the dollar mark. While the currency is currently trading above that – at R17.05 to the dollar before midday on Tuesday (17 January) – Investec’s baseline trajectory for the rand points to an average under that level for every quarter this year.

According to Bishop, GDP data coming from major economies like the UK are reducing fears of recession, which ultimately favours risk-on sentiment and drives strength in emerging market currencies.

“Germany’s statistical agency also highlighted at the end of last week that the Eurozone’s largest economy likely avoided a recession,” Bishop said; she added that the International Monetary Fund also sounds more positive about global growth.

The IMF said that the United States can also still avoid tipping into a recession due to some “remarkable” economic resilience.

“Echoing (Investec’s) view, the IMF now believes that the trajectory of slowing global growth to reverse in the second half of 2023, possibly towards the end of 2023, and then to see in 2024 higher growth than we had in 2023,” Bishop said.

Meanwhile, all eyes will be on China, she said, which has signalled a reopening of its economy and could become a net contributor to global GDP growth by the middle of the year.

Despite the rosier outlook, Boship noted that the IMF is still warning that 2023 would be challenging, especially as central banks face tough decisions as to how much further to squeeze their economies in the face of persistently high inflation.

“Sentiment in global financial markets will remain focused on US economic data, particularly the pace at which inflationary pressures slow, and the strength of the jobs markets, the consumer and businesses,” she said.

“Expectations for a soft landing for the US economy have broadened, as economic data holds up, which has allowed the US dollar to retreat, and the euro to return to parity, then exceed it with the greenback.”

The economist noted that the US dollar is likely to see further weakening this year, as terminal interest rates are reached while inflation falls potentially quicker than expected.

What this means for South Africa

Under these conditions, the rand stands to make gains against major currencies – however, Bishop warned that many local risk factors are still at play.

Most notably, load shedding and the ongoing power crisis will keep the local economy under pressure, while “a worsening in rail and port capacity is a further risk for SA and so the rand this year”.

Among these, South Africa also has to contend with high levels of unemployment, slow economic growth, populist political policies and the looming greylisting by the Financial Action Task Force. All of these factors are at play in determining the country’s prospects for the year.

Investec highlighted five key scenarios for South Africa in 2023, the most likely being its baseline scenario with a 48% chance of occurring.

Extreme upside

  • Probability: 1%
  • Rand movement: Strong first quarter, averaging R16.40, moving to R15.50 by Q2, R14.50 by Q3 and R14.00 by Q4.
  • Conditions: 
    • Strong economic growth (3% to 5% in 2023 then 5% to 7% in 2024)
    • Good governance with growth-creating reforms
    • Strong property rights, no nationalisation or land expropriation without compensation
    • High business confidence and investment growth
    • Fiscal consolidation drives debt to low ratios
    • Subdued inflation
    • Favourable weather conditions
    • No greylisting
    • Quick transition to renewable energy from fossil fuels


  • Probability: 4%
  • Rand movement: Strong first quarter, averaging R16.60, moving to R15.90 by Q2, R15.50 by Q3 and R15.00 by Q4.
  • Conditions:
    • Economic growth averages 3.3% over five years, lifting to 5.0% by period end
    • Rising confidence and investment levels
    • Structural constraints eroded
    • Global growth strong
    • Risk-on markets
    • Strong property rights, no nationalisation or land expropriation without compensation
    • Low domestic inflation
    • Favourable weather
    • Increased privatisation
    • Credit rating upgrades
    • Substantial transition to renewable energy from fossil fuels
    • No greylisting


  • Probability: 48%
  • Rand movement: First quarter averaging R16.90, moving to R16.45 by Q2, R16.20 by Q3 and back up to R16.40 by Q4.
  • Conditions:
    • Modest economic growth of 1.9% average over five years, lifting to 3.0% by end period
    • Neutral to positive risk sentiment in global markets
    • Fiscal consolidation in South Africa leading to positive sentiment
    • Likely credit rating upgrades
    • Stable rand, which strengthens
    • Inflation impacted by weather patterns – via food price inflation
    • Slow move away from fossil fuels
    • Russia/Ukraine conflict eases and does not exacerbate
    • Little expropriation without compensation
    • Temporary greylisting

Lite downside

  • Probability: 36%
  • Rand movement: Weak first quarter, averaging R18.30, moving to R18.50 by Q2, R18.00 by Q3 and R18.20 by Q4.
  • Conditions:
    • Weak GDP growth of 0.9% average over five years
    • Swing toward left-leaning policies
    • Depressed business confidence
    • Substantial load shedding and water shedding
    • Very weak rail capacity
    • Civil and political unrest
    • Little investment growth
    • Recession
    • Risk of credit rating downgrades
    • Some expropriation of private sector property without compensation
    • High inflation
    • Unfavourable weather conditions
    • Marked rand weakness
    • Little transition to renewables away from fossil fuels
    • Greylisted

Severe downside

  • Probability: 11%
  • Rand movement: Weak first quarter, averaging R18.70, moving to R19.30 by Q2, R19.50 by Q3 and R19.70 by Q4.
  • Conditions:
    • Lengthy global recession and global financial crisis
    • ANC/EFF coalition in 2024
    • Widespread, severe load shedding
    • Severe political and civil unrest
    • Increased government borrowing from wide sources
    • Credit rating downgrades, increased risk of default
    • Failure to transition to renewables from fossil fuels
    • Very high inflation
    • Very adverse weather conditions
    • Severe rand weakeness
    • Expropriation of private property without compensation
    • Greylisted



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Last modified on Tuesday, 17 January 2023 17:37

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