Rand. Picture: REUTERS
Rand. Picture: REUTERS

The rand could strengthen towards R15 to the pound should Britain experience a hard Brexit from the EU in coming months, Investec said on Thursday.

This rand appreciation would also require that US interest-rate expectations do not increase at the same time, although it seemed that debate within the US Federal Reserve had begun pointing to a lower, as opposed to higher or neutral, US rate, said Investec chief economist Annabel Bishop.

This could see the rand trending towards R15 to the pound by 2020, which level it hasn't seen since 2013. In January 2016, the rand hit its lowest level ever, at nearly R26 to the pound.

"While SA is not expected to necessarily see direct financial turbulence due to a hard Brexit, risk-off sentiment would likely rise, a negative for emerging-market currencies," said Bishop. Furthermore, the anticipated sharp fall in UK confidence measures would negatively impact UK growth, with the EU not expected to escape unscathed.

Brexit negotiations have reached a critical phase, largely centred on border issues with Northern Ireland. The Bank of England (BoE), which, earlier this month, opted to leave interest rates unchanged, has also cited the possible financial turbulence from the divorce with the EU as the primary risk facing the pound. Prior to the BoE decision, an interest rate increase had been factored in by the market.

On Thursday, the rand was mostly flat against the pound at about R16.65.