The rand crashed to a new record low overnight, reaching R19.8279/$ on Thursday night. The currency has now lost almost 26% of its value over the past year. In the past two weeks alone, since the US accusation that Russia received arms in South Africa, it has plunged 8%.

On Thursday, the currency was hit by another shock sell-off following the SA Reserve Bank's monetary policy committee meeting.

While the repo rate hike of 50 basis points to 8.25% was largely expected, market analysts are divided about why the currency started bleeding.

Some commentators blame the slump on Reserve Bank Governor Lesetja Kganyago's less hawkish tone about future rate hikes.

Kganyago said that the bank had been saying for some time that it was tightening monetary policy but that it had not yet reached "restrictive territory".

"Now, we have just reached restrictive territory. We have got to see the effects of this policy stance and what it means." This was interpreted as a signal that the bank is hoping not to raise rates again.

Higher interest rates make rand assets more attractive to international investors. But other countries are still planning to hike rates, which would make the rand less appealing.

However, others believe that the sharp rand slump was triggered by concerns about the economic fall-out of another aggressive hike. South Africa may already be in recession as loadshedding devastates the country.

"The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake," said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank, told Bloomberg. "The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects."

Government bond yields took a sharp hit on Thursday.

"The health of the local economy is now the primary concern," Brendan McKenna, an emerging-markets strategist at Wells Fargo Securities in New York, told Bloomberg. "It’s difficult to make a really compelling case to deploy capital toward South Africa and the rand at the moment. The rand has been an [emerging market] currency that has underperformed for most of this year, and given the commentary from the SARB... that underperformance is likely to continue."

Kganyago warned that given upside inflation risks, larger domestic and external financing needs, and loadshedding, further currency weakness appears likely.

Bloomberg’s forecast model, based on rand options trading, shows a more than 50% chance that the rand will crash through R20/$ in the next week.

But FNB portfolio manager Wayne McCurrie cautioned that the rand has a history of bouncing back from record lows: 

Now while this might sound crazy in this environment, the medium-term outlook for the rand is still positive. Fair value is still below R17/$ and every time in past that the rand has collapsed it has strengthen back to fair value.

For now, however, the rand weakness will add to hot inflation in South Africa, as the country imports most of its fuel, and key crops like maize and wheat are priced according to import and export parity (in dollars).

On Friday morning, the rand was trading at R19.71/$, R24.34 to the pound and R21.16 to the euro.