The rand strengthened to R6.81:US$1 in December, a three-year high and 8.8% stronger than a year earlier, driven by robust investor appetite for emerging-market assets, including South African bonds, because of the much higher yields on offer compared with rich-country markets. The authorities, believing the rand to be overvalued, will try to stem the appreciation by building foreign-exchange reserves and loosening some capital controls, but direct intervention is not in prospect, as rand strength reflects global forces beyond local control. The rand will stay stronger for longer than had been predicted earlier, and is estimated to have averaged R7.3:US$1 in 2010, but gradual depreciation remains the most likely outcome for the forecast period, given South Africa's fairly high inflation and current-account deficit, and political uncertainty in the run-up to the 2014 election. We therefore expect the rand to drift to R7.6:US$1 in 2011 and R8.4:US$1 in 2012, and to continue weakening to R9.5:US$1 in 2015, although exogenous shocks or unwelcome policy shifts could lead to a faster decline.