Our estimate of the South African sovereign term premium has declined over the course of 2025, but remains elevated, both by historical standards and against other major emerging market sovereigns. A high term premium keeps South African government’s borrowing costs high and implies that the neutral rate of the economy (reflecting where short-term interest rates are expected to settle in coming years once the effects of shocks have faded) has not declined meaningfully over this period. We previously showed that decreases in the term premium tends to be associated with lower economic slack and a stronger currency.
