With a low level of official foreign reserves, a growing deficit in the current account of the balance of payments and deteriorating prospects for a renewed inflow of capital into the country, participants in the market for foreign exchange became very nervous and reacted wildly to rumours, adverse political developments and negative news about the balance of payments, the foreign reserves, and domestic economic developments.
The initial depreciation of the rand created negative expectations which became self-fulfilling, particularly as leads and lags in short-term trade financing also moved strongly against South Africa, and South Africans became more reluctant to enter into new foreign currency denominated commitments.