Rand's volatility set to have major impact on local agri sector

For South Africa, a turbulent local currency is likely to be a key feature this year, and one that agricultural stakeholders should prepare for. Absa Agribusiness looks at this and other factors affecting the sector.

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The rand has swung back and forth between significant highs and lows against the US dollar over the past 12 months, fluctuating from just over R15/US$ at end-February 2022 to over R18 at end-January 2023 (see graph). 

This volatility was the result of a variety of local and global factors that caused extreme volatility.

In this article, Absa AgriBusiness discusses the main factors that gave the rand its direction over the past year, offers its predictions in this regard for the months ahead, and highlights new issues affecting currency dynamics.

AGGRESSIVE TIGHTENING OF MONETARY POLICY

As noted in some of Absa AgriBusiness's previous columns, 2022 will surely be remembered as a year of high and rapid global inflation. In response to this, monetary policy authorities across the world opted for aggressive hikes in interest rates.

More recent metrics suggest a cooling of inflation as 2023 progresses and, as a result, interest rate hikes are expected to slow.

However, it is unlikely that South Africa, and even the world at large, will see notable declines in interest rates over the next 24 months. As a result, the rand is expected to remain under pressure, as capital flows to lower-risk markets such as the US.

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