ZAR: Structural progress meets carry risks – BNY

BNY’s Geoff Yu remains broadly constructive on South Africa and the Rand, citing structural improvements under the Government of National Unity and earlier terms-of-trade support from the 2026 commodity rally. Nonetheless, he cautions that reforms will take time, wage pressures are elevated, and EM currency exposures, including ZAR, now demand tighter risk management as inflation risks rise.

Positive reforms but tighter FX risk control

"For much of the last 18 months we have been very positive on ZAR and South Africa as many of the structural issues have seen clear resolution through the efforts of the Government of National Unity."

"The early 2026 commodity rally gave South Africa its own terms-of-trade lift, but that could be quickly unwound by energy stress."

"Nonetheless, on an institutional basis, new reforms such as fiscal rules will take time to bed in, which again can only be done while global financial conditions are loose."

"Meanwhile, recent wage settlements remain to the high side, and the market may demand even higher nominal rates to compensate for raw inputs and labor supply risks."

"We retain a positive view on EM fixed income broadly, but currency exposures require much closer risk management – especially if central banks fall short of the proactive response inflation risk demands."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)