Rand Breaks Below R17 as Markets Surge on South Africa’s Bold New Inflation Target

South Africa’s rand strengthened below R17 per dollar for the first time since February 2023, powering through global markets as investors cheered the country’s bold new inflation target and improved fiscal outlook. The rally marked a turning point for the local currency, which gained as much as 0.8% on Thursday — its strongest level in nearly three years.

The surge followed the mid-term budget announcement confirming South Africa’s new 3% inflation target, a shift investors believe will anchor price expectations and support long-term economic growth. With the central bank expected to keep interest rates elevated for longer, the stronger inflation anchor has boosted confidence in the currency.

The Johannesburg stock market reacted sharply, becoming the best-performing equity index in the world on the day. Government bonds also surged, with yields falling to levels last seen seven years ago.

According to the National Treasury, lowering the inflation target from 4.5% to 3% will, over time, reduce inflation expectations and create space for sustainably lower interest rates — ultimately stimulating growth.

Despite cutting interest rates twice this year, the Reserve Bank has signalled a pause until inflation trends toward the new target. Analysts say the policy divergence between the SARB and the U.S. Federal Reserve has become a major catalyst for rand strength.

By early afternoon in Johannesburg, the rand traded at 16.9831 per dollar, extending a powerful seven-day winning streak. Bloomberg data shows the currency has returned more than 13% in the dollar-funded carry trade this year, boosted by global risk appetite and the Fed’s rate cuts.

Foreign investment into South African government bonds has also surged, jumping to R175 billion this year compared to R73 billion over the whole of last year. At the same time, the Treasury has reduced weekly debt issuance, limiting supply and adding further upward pressure on bond prices.

Analysts say the combination of strong investor inflows, a credible inflation target and disciplined fiscal management has improved South Africa’s investment landscape.

Yields on benchmark 2035 rand bonds fell seven basis points to 8.61% — the lowest closing level since March 2018. Dollar bond yields also dipped, with the 2036 maturity dropping to 6.14%.

Elevated precious-metal prices have added additional support to the rand. Gold recently hit record highs above $4,000 an ounce, while silver and platinum prices also climbed. With raw materials making up more than half of South Africa’s export revenue, stronger commodity markets significantly bolster the currency.

Stocks surged in parallel. The FTSE/JSE All-Share Index climbed as much as 2.5%, driven by rising metal prices, the budget outlook and growing optimism around a possible credit-rating upgrade from S&P Global Ratings. South Africa’s rating currently sits at BB- with a positive outlook — a sign that an upgrade could be imminent.

Analysts say positive sentiment around the fiscal outlook and institutional stability has given “SA Inc.” renewed momentum.