The SARB Governor is reported to have suggested in 2025 that the fair value of the rand vs the dollar is around R7. Our modelling suggests that the fair value of the rand is closer to R16.
Our modelling is based on a Bayesian regime-switching Vector Error Correction model that incorporates interest rates, consumer prices, money supply and industrial production for South Africa and the US, and allows for the drivers of exchange rate movements to change over time. Today’s post by Oliver Guest shows that unlike many other models of rand fair value, our estimates suggest that South Africa’s relative fundamentals can explain the rand’s recent strengthening.
For more discussion on the model see this earlier post.
