South Africa’s Medium-Term Budget Policy Statement (MTBPS), delivered on 12 November, has provided fresh momentum to local financial markets, with Finance Minister, Enoch Godongwana, confirming fiscal consolidation gains that exceeded market expectations. Within an hour of the Minister’s speech, the rand strengthened to R17.05/dollar, while bond yields declined, and the JSE Top 40 climbed 1.22%. This positive reception reflects more than just the MTBPS itself – it represents the culmination of multiple tailwinds that have supported South African assets throughout 2025.
Fiscal consolidation delivers results
The MTBPS confirmed that government debt is projected to stabilise at 77.9% of gross domestic product (GDP) in the 2025/26 financial year, marking the first time since the 2008 financial crisis that public debt will not grow as a percentage of GDP. This milestone has been achieved despite a challenging growth environment, demonstrating genuine fiscal discipline rather than merely favourable circumstances.
Revenue performance surprised on the upside, with collections exceeding the February Budget estimate by R19.3 billion, driven by stronger VAT and corporate tax receipts. This has allowed Treasury to fund priority areas while maintaining its commitment to debt stabilisation. The budget deficit is now expected to narrow steadily from 4.5% of GDP in 2025/26 to 2.7% in 2028/29.
Two key announcements captured market attention. First, National Treasury reduced weekly government bond issuance from R3.75 billion to R3 billion – a larger-than-expected cut that signals improved funding conditions and lower borrowing requirements. This reduction eases pressure on the bond market and demonstrates confidence in the fiscal trajectory.
Lower inflation target: A game changer
The second major announcement was the formal adoption of a 3% inflation target with a 1% tolerance band, effectively moving from the previous 3% to 6% range to 2% to 4%. While the South African Reserve Bank (SARB) has been informally targeting this level, Treasury’s formal endorsement creates a unified policy framework with significant long-term benefits.
Lower inflation directly benefits bond investors, whose biggest enemy is inflation. By anchoring inflation expectations at 3%, South African bonds become more attractive to both local and international investors, as the real returns are more predictable and protected. This increased demand for bonds helps keep bond yields lower, which translates into reduced borrowing costs for government.
The ripple effects extend throughout the economy. Lower interest rates reduce the cost of capital for businesses, making investment projects more viable, thereby supporting job creation. Households benefit from cheaper mortgage rates and consumer credit, boosting purchasing power.
The move also aligns South Africa with emerging market peers, normalising the country’s monetary policy framework and reducing the risk of inflation-adjustment pressures. For the SARB, the lower target provides room to cut interest rates further in 2026 without compromising price stability, supporting economic growth while maintaining credibility.
Broader tailwinds supporting market performance
While the MTBPS provided the latest catalyst for markets, South Africa’s strong asset performance reflects several converging positive factors. After five straight years of annual losses against the dollar, the rand is on track for its first calendar-year gain since 2019 and one of its strongest years in more than a decade. At the same time, the FTSE/JSE All Share Index has gained around 34% year-to-date, its strongest rally since the mid-2000s and comfortably ahead of most major global equity markets.
A significant milestone was South Africa’s removal from the Financial Action Task Force (FATF) grey list in late October 2025, after nearly two years of intensive anti-money laundering reforms. This delisting removes a major reputational obstacle that had increased transaction costs and complicated cross-border business. It enhances investor confidence and improves the ease of doing business, particularly in the financial sector.
Commodity markets have also provided substantial support. Gold prices are up 38% year-to-date, and platinum has surged 50%, driven by investors seeking safe havens amid global uncertainty. South Africa’s position as a major precious metals producer means JSE-listed miners have been among the strongest performers, with the Resources 10 Index more than doubling during 2025. These gains have lifted the broader market indices significantly.
The global backdrop has improved as well. Major central banks have signalled the end of aggressive interest rate hikes as inflation moderates, creating a more supportive environment for emerging market assets. South Africa has benefitted from this shift in risk appetite, particularly given its attractive starting valuations and high real yields relative to developed markets.
Looking ahead: Solid foundation but execution critical
Despite these improvements, challenges remain. Treasury has revised 2025 GDP growth down to 1.2% from 1.4%, reflecting weak fixed investment and lower exports in the first half of the year. Growth is only expected to reach 2.0% by 2028, which remains below the pace needed to make meaningful progress on unemployment and poverty.
Risks include weaker global growth, commodity price volatility, and the precarious financial health of state-owned entities. The success of fiscal consolidation depends on effective execution, including spending reviews, professionalising the public service, and accelerating infrastructure investment through private-public partnerships. Maintaining political cohesion within the Government of National Unity will also be essential for sustaining policy discipline.
However, the combination of credible fiscal consolidation, the lower inflation target, grey list removal, and favourable commodity prices has materially improved South Africa’s investment case. Markets are responding to tangible progress rather than promises, with debt stabilisation providing a foundation for sustainable growth. While vigilance regarding execution risks remains essential, sentiment toward South Africa has shifted decisively to positive, creating opportunities for both local and international investors who have long waited for signs of structural improvement.
A LOOK AT THE MARKETS
The week’s key themes:
- South African bonds strengthened to levels unseen since February 2021
- Wall Street suffered sharp retreat amid valuation anxieties
- Bullion climbed past $4,200/ounce, tracking toward its strongest weekly performance in over a month
- South Africa’s currency strengthened beneath R17.00/$, reaching January 2023 heights
Bonds
US Treasury yields for 10-year notes pushed past the 4.1% threshold as markets digested the conclusion of Washington’s budget impasse, which resulted in the longest US government shutdown in history. Attention shifted toward forthcoming statistics, though Kevin Hassett from the National Economic Council warned some October measurements might permanently vanish due to collection disruptions. Private indicators suggest employment weakness and cautious consumers, while rate reduction odds for the upcoming US Federal Reserve (Fed) decision dropped to approximately 54%, down from nearly 65% on Monday. The latest note auction revealed softer appetite.
British gilts maintained yields near 4.4%, matching December 2024 lows, following disappointing expansion figures. Third quarter United Kingdom (UK) growth came in at a mere 0.1% against expectations of 0.2%, while September saw a contraction of 0.1%. UK unemployment reached four-year peaks and wage growth hit its slowest pace since early 2022. A reported attempt to unseat British Prime Minister, Keir Starmer, failed, and raised concerns about market volatility ahead of the 26 November fiscal presentation.
German Bunds hovered around 2.65% as economists trimmed 2026 German GDP growth projections to 0.9%, down from 1%. Markets anticipate roughly 40% likelihood of European Central Bank (ECB) easing by September 2026.
South African bonds strengthened below 8.60% – levels unseen since February 2021 – following Enoch Godongwana’s disciplined mini budget and adoption of a 3% inflation anchor, supporting investment confidence.
Equities
US equity futures found stability following Thursday’s sharp retreat, where indices suffered their steepest losses since 10 October – the Dow surrendering 1.65%, the S&P 500 giving up 1.66%, and the Nasdaq tumbling 2.29%. Technology behemoths bore the brunt, with names like Tesla, Nvidia, AMD, Palantir, Broadcom and Oracle shedding between 3.6% and 6.6% amid valuation anxieties and massive capital expenditure plans.
London’s FTSE 100 retreated 1.1% as energy majors, BP and Shell, declined over 1.5%. Private equity group, 3i, crashed 17% on weaker Action performance, while composite insurer, Aviva, surrendered more than 5% despite improved targets. Aerospace and power systems company, Rolls-Royce, dipped 2.5% citing supply constraints.
European indices, STOXX 50 and 600 fell 0.6% and 0.8% respectively. Industrial technology company, Siemens, plunged 9.1% on subdued forecasts, while 3i dropped 17.2%. Conversely, science and technology company, Merck, jumped 4.9% on earnings, and healthcare and pharmaceutical company, Novo Nordisk, gained 1%.
Locally the JSE All Share Index surged 2.5% to approximately 115,716, reaching unprecedented heights on precious metals strength and positive mid-term fiscal announcements, potentially influencing South Africa’s upcoming S&P ratings assessment.
Commodities
Bullion climbed past $4,200/ounce, tracking toward its strongest weekly performance in over a month, benefiting from dollar weakness and statistical ambiguity following Washington’s budget resolution. Yet appreciation remained limited as Fed policymakers displayed reluctance toward cutting rates.
Brent futures advanced over 2% toward $64/barrel, poised to break a fortnight’s decline, as looming American penalties beginning 21 November, may create supply disruption. Global oil and gas company, Lukoil, commenced workforce reductions in trading divisions ahead of these restrictions, while analysts estimate roughly one-third of Moscow’s seaborne shipments remain trapped in vessels due to logistical delays, compounded by Indian and Chinese purchasing suspensions. However, the International Energy Agency cautioned about surplus conditions, forecasting demand shortfalls of 2.4 million barrels daily this year and 4 million next, despite projecting consumption expansion through 2050. Third-quarter oversupply from the expanded Organisation of Petroleum Exporting Countries, OPEC+, American production increases, and inventory accumulation reinforced downside pressure.
Currencies
The US Dollar Index lingered near 99.2, heading for its second straight weekly setback amid speculation that delayed US government statistics could expose economic deceleration. Trump’s signature on temporary financing legislation concluded America’s most extended federal closure, though authorities warned certain October measurements might permanently vanish. The Fed easing odds for December slipped to roughly 50%, despite 2026 reduction expectations still remaining.
The euro pushed past $1.16/€, approaching late October peaks, following Washington’s 43-day impasse resolution on Wednesday. ECB policymakers appear set to maintain current settings, with markets pricing merely 40% likelihood of September 2026 adjustment. ECB Vice President, Luis de Guindos, stressed that existing rates must remain suitable, and advocated for prudent positioning.
Sterling retreated toward $1.31/£, nearing seven-month lows after Keir Starmer and Rachel Reeves abandoned income levy increases preceding the 26 November fiscal announcement, leaving the UK fiscus facing a £30 billion shortfall. Third-quarter UK growth which came in below expectation, the contraction of the UK economy in September, and four-year unemployment highs and weakest wage acceleration since early 2022, are fuelling expectations that the Bank of England will cut rates.
South Africa’s currency strengthened beneath R17.00/$, reaching January 2023 heights following Enoch Godongwana’s MTBPS, where he announced a 3% inflation anchor and R1 trillion in infrastructure commitments across three years, while also providing a solid case of fiscal consolidation and prudency.
*Please note that all information is at the time of writing.
Key indicators:
USD/ZAR: 17.07
EUR/ZAR: 19.87
GBP/ZAR: 22.44
BRENT CRUDE: $63.82
GOLD: $4,171
Sources: Bloomberg, Investing.com, LSEG Workspace and Trading Economics.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.