Economic Update November 2026
Updated: 18 minutes ago
The Downside
Shortly after monetary policy became less restrictive in September 2024, a host of macroeconomic indicators took a decisive turn for the better. As the record-high prime lending rate of 11.75% began to fall, banks' impairments as a percentage of total assets also declined.
Predictable inverse relationships between the cost of credit and the Altron FinTech Household Resilience Index also kicked in, with the index gaining traction as household debt costs fell. Residential property market activity also picked up, with the BetterBond Index of Home Loan Applications resuming its upward trend.
Then the missiles and drones started flying all over the Middle East, and the war in Eastern Europe led to significant damage to Russia's diesel refineries, eventually halting exports from the world's fourth largest producer of diesel. With oil and its refined products in short supply, it was inevitable that inflation would increase around the globe, including in South Africa.
Unfortunately, the Reserve Bank's decision to abandon its inflation target range of 3% to 6% at the end of last year has now put paid to the rate-cutting cycle. With the September inflation rate at 4.5%, the midpoint of the previous target range, it would not have been necessary to raise the cost of credit and capital. However, with the new target point of 3%, the South African economy will now have to suffer the damaging effects of an increase in the prime lending rate from 10.25% at the beginning of the year to 10.75% at the end of October.
The Upside
Mini-budget provides fuel price relief.
This year’s Medium-Term Budget Policy Statement (MTBPS), usually referred to as the ‘mini-budget’, received the thumbs-up from virtually the entire spectrum of commentators due to the anticipated reduction in levies on diesel and petrol. The National Treasury did not disappoint, announcing a substantial reduction in fuel levies for both diesel and petrol for the last two months of the year, at an estimated fiscal cost of R10 billion.
Fortunately, an expected overrun in fiscal revenue of around R17 billion will comfortably cover this expense. Since this announcement, more good news has been forthcoming for the country’s road transport sector and motorists, namely a sharp drop in oil prices (following the US mid-term elections) and a stronger rand exchange rate.
Other good news emanating from the mini-budget is the welcome return to a primary budget surplus (revenue minus non-interest expenditure), which is forecast to reach 2.9% in the 2029/30 fiscal year. In line with this trend, the government’s gross loan debt is also expected to decline from the current level of around 78% of GDP to below 77% by 2029/30.
US Treasury yield hits 20-year high.
A robust US economy, which is forecast to have grown by 3.4% during the third quarter (year-on-year), combined with an increase in the country’s consumer inflation rate to 3.6%, largely explains the recent resurgence of the US Dollar Index (the so-called “Dixie”). This index was established in 1973 by the U.S. Federal Reserve and measures the value of the US dollar relative to a basket of six major foreign currencies, including the Euro, the Japanese yen and the British pound.
Between April 2017 and April 2022, the Dixie spent most of its time well below the base period level of 100. Following the record increases in global freight shipping charges and the oil price spike in the aftermath of Russia’s military invasion of Ukraine, global inflation rose to multi-year highs, prompting central banks, including the Federal Reserve, to increase their benchmark lending rates.
As a result, the US dollar index rose in line with yields on 10-year US Treasuries, which recently climbed to their highest levels in almost two decades. This has acted as a magnet for global capital seeking higher returns with a perceived lower risk, relative to other sovereign bonds and gold. After stabilising at levels of between 4.1% and 4.5% over the past three years, the US Treasury yield shot up to 5.31% in October 2026, although it shed almost 50 basis points shortly after the US mid-term elections.
In the process, the greenback has taken a hefty toll on the gold price, which declined by 17% between the end of February and the end of October. During the first week of November, however, gold has bounced back by more than 5% to just below $4,100 per fine ounce, which holds some promise for South African gold mines.
In the coming weeks, the US Dollar could remain firm on rising expectations for an interest rate hike. According to the CME FedWatch Tool, which analyses the probability of changes to the US federal funds rate, the chances of an increase in December stand at around 75%. This view is supported by a strong economy and inflation moving further above its 2% target.
On balance, Dr Roelof Botha deliberately emphasises positive news. It often highlights the resilience of the South African economy and the immense scope for new business opportunities.
