For the first time since 2016, South Africa‘s rand finds itself among the five best-performing emerging-market currencies of the year — and there may be more to come, according to analysts at Credit Agricole SA and Ashmore Group Plc.

A steep retreat in December saw the rand surrendering its year-to-date gain for a decline of about 2% in 2024 — a year in which just three emerging-market currencies advanced. That places it fifth after the Malaysian ringgit, Hong Kong dollar, Thai baht and Peruvian sol among 24 major developing-nation currencies tracked by Bloomberg.

Developing-nation currencies have struggled in 2024 as robust US economic growth bolstered the dollar. But the rand’s relative resilience has been aided by rising investment levels, lower inflation and structural reforms, with a cautious central bank maintaining its favorable interest-rate premium over the greenback.

“South Africa’s carry appeal remains strong as inflation and expectations stay anchored,” said Sebastien Barbé, head of EM research and strategy at Credit Agricole, referring to a strategy in which investors borrow dollars to buy higher-yielding currencies. The rand’s forecasted total return for 2025, based on expected interest rates and exchange-rate values, is 15%, according to Bloomberg calculations.

Credit Agricole forecasts an exchange rate of 16.40 rand per dollar by the end of 2025. That implies a gain of about 13% from the current level, and is more bullish than the median of 18.07 in a Bloomberg survey of analysts. The rand strengthened 0.5% to 18.7097 per dollar as of 10:11 a.m. in Johannesburg.

The value of fixed-investment projects in South Africa rose to 794 billion rand ($42 billion) in 2024, up from 193 billion rand in 2023, according to Credit Agricole. The increase comes amid progress on infrastructure and energy reforms, including public-private partnerships at the country’s biggest port. Electricity provider Eskom Holdings SOC Ltd. reduced disruptions, further supporting economic activity.

Annual inflation, which accelerated marginally in November to 2.9%, still remains around the lowest level in more than a decade and well within the central bank’s 3% to 6% target range. Inflation expectations for the next year have dropped to 4.6%, according to the Bureau for Economic Research, providing the South African Reserve Bank with room to cut interest rates. The SARB has already lowered borrowing costs by 50 basis points since September, with markets anticipating another reduction in early 2025.

Infrastructure improvements will likely benefit the country — and its currency — further, said Gustavo Medeiros, deputy head of research at Ashmore. “Logistic reforms and a visible recovery in tourism inflows are creating tangible growth and foreign-exchange benefits,” he said.

Meanwhile, inflows into South Africa’s bond market are on track for the highest level since 2019, according to JSE Ltd. data. Non-residents’ net purchases of local debt totaled 41.4 billion rand in the third quarter, up from 13 billion rand in the previous three months, according to the central bank, which also noted that the economy is in its longest upward cycle since 1999.

“South Africa is showing it can deliver on the fundamentals,” Credit Agricole’s Barbé said. “The data reflects the foundation for continued momentum into 2025.”

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