The rand stabilises as global investor sentiment improves

In a year defined by fluctuations in global markets, the South African rand has demonstrated some stability, albeit accompanied by nuanced shifts against major currencies.

As analyses by Annabel Bishop, Investec Economist, highlighted, the rand showed a concerning -1.7% year-on-year decline against the euro in 2025 and a marginal -0.6% against the pound.

However, its performance against the US dollar has sparked discussions, as the currency strengthened by 2.5% year-on-year, which, when coupled with the dollar’s own weakening of -3.3% within the same timeframe, raises questions about the rand's overall resilience.

Despite these fluctuations, Bishop's insights reveal a glimmer of hope for South Africa's economic landscape.

The country’s credit default swap (CDS) rate has dropped significantly to 135 basis points from 193 a year ago, indicating a marked improvement in perceived risk.

This shift signals an increasing confidence among investors regarding South Africa's economic stability, which is further reflected in the benchmark ten-year domestic bond yield decreasing to 8.36%, compared to nearly 11% at the start of 2023.

The improving outlook is attributed to a brighter economic growth trajectory after a period of decline from 2022 to 2024, which has helped bolster investor sentiment.

The optimism surrounding accelerated gains can be traced back to expectations of further US interest rate cuts, which have effectively weakened the dollar and subsequently propelled the rand to an impressive R16.53/USD, down from R19.11/USD.

Globally, investor sentiment has also taken a turn for the better, particularly in the latter half of 2025.

Expectations for returns have improved significantly, with the S&P Global Investment Manager Index suggesting a stronger macro environment for US equities and the anticipation of enhancing corporate performance fuelling further growth.

The index’s Risk Appetite Index has surged from +18% in November to +34% in December, its highest since December 2024.

Within South Africa, the modest GDP growth of 0.5% quarter-on-quarter in Q3 of 2025 belies a more promising forecast for the current year.

The much-lauded phase two of Operation Vulindlela is set to bolster economic growth, projected to reach 3.0% by 2030.

With an improved inflation rate contributing to lower interest rates, the country’s economic environment is increasingly viewed as favourable.

The subtleties of global trade dynamics also play a role in shaping South Africa's future.

With the US Supreme Court poised to rule on the validity of the International Emergency Economic Powers Act tariffs, the impacts of evolving US trade policy are expected to reverberate through global markets, necessitating vigilance and adaptability.

As South Africa continues to navigate these economic waters, the balance between domestic stability and global market influences will be crucial in determining the trajectory of the rand and, ultimately, the country's economic health.

BUSINESS REPORT