Policy will respond, via a commensurate tightening from the zero lower bound over the medium term, and also through sustained fiscal deficit reduction. Smaller fiscal deficits, higher interest rates, and strong economic growth should generate a sustained rise in the US dollar against other currencies – including the rand.
All things equal, US normalisation will require corresponding policy shifts in South Africa, including higher local interest rates. These predictions are reliable, but specifying just when they will be validated is harder. Will the first rate increase in the US come in mid-2015? A few months later? Will policy tighten at every meeting, and in what increments?