Rand Slumps in Big Mac Index as Undervaluation Hits 52.04%

The rand is undervalued by 52.04% against the US dollar according to the Big Mac Index, which marks its 40th anniversary. The local currency held steady after the US Federal Reserve left interest rates unchanged overnight. A Big Mac costing R68.30 in South Africa would effectively cost about half as much in dollar terms if currencies reflected the same purchasing power.

The Economist created the Big Mac Index in 1986 as a tongue-in-cheek take on purchasing power parity, but it has evolved into one of the world's best-known alternative measures of currency valuation. The index compares the price of McDonald's signature burger around the world to calculate what exchange rates should be.

Despite criticism that a single burger cannot accurately reflect an economy, the publication argues the index remains relevant because a Big Mac incorporates dozens of inputs, from ingredients and labour to rent and utilities, making it a useful proxy for local purchasing power. The rand traded at around R16.48 against the dollar on Friday morning after markets reacted calmly to the Federal Open Market Committee's decision.

Investec chief economist Annabel Bishop said the Fed's decision had little immediate impact on the rand. Andre Cilliers, currency strategist at TreasuryONE, said the broader US dollar had steadied after Wednesday's post-Fed sell-off, helping the rand maintain its recent gains.