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The interest rate cut cycle is expected to slow this year, after two cuts in quick succession at the end of last year, with SARB not expected to ease interest rates again until July at least.
Expectations for interest rate cuts in the US have moderated, from three -25bp drops, to one definite -25bp drop, and currently just under 70% chance of a second for this year.
With the US presidential inauguration last night, the rand strengthened, reaching R18.48/USD as the US dollar weakened, with President Trump highlighting the need to bring inflation down and stimulating economic growth.
President Trump’s economic team has previously discussed the potential for a moderate tariff path, covering only critical imports, as opposed to a sharp universal tariff approach on all imports.
While he mentioned taxing other countries via tariffs, specifics were not given and markets strengthened in relief as risk-off subsided somewhat. However, threats of hefty tariff increases on Canada and Mexico to stem illegal immigration persisted.
Inflation in South Africa has fallen below the 3-6% inflation band, dropping to 2.8% y/y in October and rising only slightly to 2.9% y/y in November, with tomorrow’s inflation outcome also expected to be close to 3.0% y/y.
Both 2025 and 2026 are expected to see inflation average 3.5% y/y this year, and 4.6% y/y next year, while the SARB targets a 4.5% y/y point (not a 3% y/y to 6% y/y range).
South Africa’s FRA (Forward Rate Agreement) curve has only priced in around one -25bp cut in the repo rate this quarter, and has priced in little further, but is not a good longer-term predictor of MPC interest rate decisions.
An end to the US interest rate cut cycle sooner than markets anticipate has seen some recent rand weakness. Fewer interest rate cuts than have been expected are a risk for SA, although this will remain dependent on the domestic inflation outlook.

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