South Africa’s financial stability outlook has improved, with successful elections, fewer power outages, and the prospect of lower interest rates, the central bank said.
Investor sentiment has significantly improved under the coalition government that was established in June 2024 after the ruling African National Congress lost its parliamentary majority for the first time in three decades.
The rand has strengthened against the US dollar and remains the only emerging market currency to have done so this year.
In addition, South Africa has experienced eight months of continuous power after years of intermittent blackouts lasting up to ten hours each day.
The South African Reserve Bank (SARB) is also well into its cycle of rate cuts; earlier this month, it lowered its main lending rate by an additional 25 basis points to 7%, with analysts predicting additional rate cuts starting next year.
According to the central bank’s second edition of its Financial Stability Review (FSR), a biannual assessment of the financial system’s health, there are still risks, many of which are structural.
“The perpetual risks to financial stability include persistently low and inequitable domestic economic growth, the impact of climate change on the financial sector and the ever-present threat of a cyber incident with systemic impact,” it said, as reported by Zawya.
Furthermore, ratings agencies have maintained South Africa at sub-investment grade for years, but confidence has increased following S&P Global’s recent upward revision of the outlook.
The SARB is mandating that banks increase their capital buffers starting in January 2025 to support the financial sector’s long-term stability.
The central bank will be able to access these funds during times of stress, and banks will be required to raise their capital holdings by 1%.
Meanwhile, South African drivers are anxiously awaiting the next fuel price change as December 2024 draws near.
According to the most recent estimates, those who depend on gasoline may see some respite, while diesel users may see a rise.