Rand should be worth R6/$, according to Big Mac index

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The rand is 60% cheaper than it theoretically should be against the dollar, the newly updated Economist’s Big Mac Index shows.

Since the 1980s, the publication has been using McDonald's Big Mac prices to determine whether currencies are overvalued, or too cheap. It assumes that an identical product – the Big Mac – should cost the same across different countries.

It found that the Big Mac costs around R33.50 in South Africa and $5.65 in the US – which means that the rand should be worth R5.93/$. Instead, it is currently trading around R14.66/$.

This is 60% weaker than where it supposedly should be, but better than last year, when the rand was 67% undervalued – the worst performance in the world. It is now the third-most undervalued currency in the world, according to the Big Mac index, below Lebanon and Russia.

As recently as a decade ago, the rand was "only" undervalued by 39% against the dollar.

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