Report: South African currency expected to weaken against the dollar over next 18 months

South African rand to weaken against the dollar

JOHANNESBURG — South Africa’s currency is predicted to weaken markedly against the U.S. dollar, a prediction that raises hope of accelerated economic recovery in the country, a leading economic research body said in a report Tuesday.

The Bureau for Economic Research at Stellenbosch University said the rand already weakened from 7.37 rand to the dollar in April to 7.60 rand last month, will further erode toward the end of this year and throughout 2011.

The bureau expected the rand to average 7.75 rand to the dollar in last quarter of 2010, before weakening to well over 8 rand to the dollar by the end of next year. It said the currency is predicted to remain firm and to average 9.72 to the euro in the fourth quarter of 2011.

The group’s chief economist Hugo Pienaar said the forecast is informed by several factors. Those include predictions the U.S. dollar will remain strong against the Euro; a slowdown in investments if global growth stalls; and predictions that commodity prices will not rise much.

“The local currency was not immune to global developments, but one may have expected more pronounced weakness,” he said. “Although the rand should remain well supported for the time being, the BER remains with the view that a move to (8 rant to the dollar) and beyond is on the cards over the next 18 months.”

Economists in South Africa say a stronger rand endangers the nation’s export earnings. Many exporters were forced to lay off employees and cut back on operations to meet the lack of demand for their goods abroad.

The exchange rate remains a source of concern after South Africa proved to be slower than other countries in recovering from the recent global economic recession. Some critics called for the government to intervene to manipulate the rand into weakening. But many top economists warned against this and said the rand would weaken by itself.