There is a possibility the rand could trade below the rate of R7,50 to the United States dollar later in the year, according to a Bureau of Economics report released in Johannesburg on Thursday.
The bureau, a research institute attached to Stellenbosch University, said that compared to earlier expectations of R9,50 to the dollar in the fourth of quarter of the year, the current forecast for the local currency was an average exchange rate of R8,50 to the greenback.
”The US dollar is expected to continue weakening against the euro over the forecast period and the rand depreciation could be slightly higher against the euro.”
The rand was trading at R8,24 to the dollar on Thursday.
The bureau released the 32-page document at a conference on South Africa’s medium-term economic prospects.
The report said, however, that next year the combination of a narrower interest rate differential and a widening current account deficit was likely to put more pressure on the rand exchange rate.
It said the rand could prove to be vulnerable once interest rates began to rise abroad.
It is possible that interest rates in the US could increase rapidly once they began to rise. A rates increase in the US was possible towards the end of the year or early next year.
The report said given the likely decline of domestic interest rates, it followed that the interest rate differential currently benefiting the rand could reverse rapidly over the short term.
”Should this be combined with a widening current account deficit as we forecast, conditions could again turn negative for the local currency,” it said. – Sapa