The rand has broken through the R12 level against the dollar for the first time in two-and-a-half years.
The local currency has strengthened by nearly 1% against the dollar so far on Wednesday, mainly on the back of the dollar trading at its weakest level against other major currencies in more than three years.
The rand is now trading at around R11,94 to the dollar.
Analysts said the current drive by the African National Congress (ANC) government to try and restore South Africa’s investment image after corruption scandals involving senior officials was helping market sentiment.
Investec analyst Annabel Bishop said this was adding on to the effect of a weaker dollar due to US economic policy concerns.
“Positive comments from SA officials in Davos on SA about ending corruption, repairing SOE (state-owned enterprises) governance and the health of public finances, maintaining key institutional strengths and promoting economic growth have also assisted in the lift in the domestic currency,” Bishop said.
Earlier on Wednesday, trade and industry minister Rob Davies told the African News Agency (ANA) on the sidelines of the World Economic Forum in Davos, Switzerland that there was optimism around the country’s growth prospects, partly helped by a more stable political outlook after the ANC’s December conference.
Investec’s Bishop warned that risks remained for the rand, saying ratings agencies who have downgraded South Africa to sub-investment grade would watch the budget in February “for both fiscal consolidation and the avoidance of excessive tax hikes that strangle economic growth”.
“Moody’s, the last key agency which has SA on investment grade, is set to deliver a downgrade after the budget if the above priorities are not met, and if insufficient progress has been made on SOE governance reform,” she added. Additional reporting by ANA
