South Africa’s improved deficit outlook contrasts with a weaker growth forecast, leaving the rand with mixed signals as investors assess inflation and the next central bank decision.
Finance Minister Enoch Godongwana said in an Oct. 21 budget statement that the deficit is expected to narrow to 3.9% of gross domestic product in 2026/27, compared with the 4.0% forecast in February. Treasury raised its gross tax revenue estimate for 2026/27 by R17.1 billion against that February estimate, citing higher corporate tax, dividends tax and value-added tax collections.
Godongwana said higher commodity prices accounted for much of the revenue gain, but that boost is expected to fade over the medium term. He put the debt-to-GDP ratio at 78.4% in 2025/26 and said it had stabilized for the first time in nearly two decades.
The fiscal update came with a weaker economic outlook. Treasury reduced its 2026 real gross domestic product growth forecast to 1.2% from 1.6% in February. Godongwana cited global conditions, the risk of a prolonged Middle East conflict and El Niño.
Statistics South Africa reported that annual consumer price inflation across urban areas rose to 4.5% in September 2026 from 4.4% in August. Prices increased 0.4% from the previous month. BusinessDay reported a 4.7% market forecast for the annual rate, making the result lower than expected even as inflation continued to rise.
FXStreet reported that Commerzbank’s Volkmar Baur viewed the inflation reading as reducing the likelihood of a November rate increase and offering some support to the rand. Baur expects challenges for the currency in the coming months before it regains ground next year, the outlet reported. The view is based on FXStreet’s account of Baur’s comments.
The South African Reserve Bank raised its policy rate by 25 basis points to 7.25%, effective Sept. 25. Its September projections indicated the rate would remain broadly steady for the rest of 2026. The bank’s next policy announcement is scheduled for Nov. 19.
The government has also released draft fiscal-anchor legislation for public comment. It would require each administration to set fiscal objectives and report on progress, without setting a fixed numerical target. The government expects to present the bill to Parliament in 2027; comments are due Jan. 29, 2027.
