Omicron, GDP Decline Hurts South African Rand

The government of South Africa had hoped for better economic performance following its expansionary fiscal and monetary policies but the opposite seems to be the case as the Omicron variant has hurt the Rand.

The Cyril Ramaphosa African National Congress government combined an increase in the money supply with a reduction in interest rates, tax holidays, and other incentives to drive business and economic activity in the rainbow country.

These measures were adopted because they were believed to be enough to tackle economic and political unrest created by the COVID-19 virus.

Unfortunately, figures coming from the South African government via trading economics showed that the South African rand fell to around 16 Rand against 1 USD, not far from an over one-year low of 16.4 hits at the end of November.

Border closures to the west and the prospect of faster monetary policy tightening by the Federal Reserve will weigh heavily on the currency during the Omicron COVID-19 virus scare. As a result, it will reach an all-time high of 19.35 in April 2020.

Global macro models and analysts at Trading Economics reveal further,

"On the macro front, South Africa's GDP slumped by 1.5% in the third quarter, eroding some of the economic gains the country has made since the severe impact of COVID-19 in the second quarter of 2020 and a major setback to the recovery from last year’s 6.4% contraction."

"Violent unrest during July and tighter coronavirus restrictions weighed on economic activity."

"South Africa is currently at Level 1 of its five-level lockdown strategy, but there is speculation that this may be increased soon as infections soar exponentially."

"The South African Rand is expected to trade at 16.26 by the end of this quarter."

"Historically, the South African Rand reached an all-time high of 19.35 in April of 2020." Its report concluded