Market watchers yesterday acknowledged that there was a lot of uncertainty regarding US President-Elect Donald Trump policies with foreign countries, but the economists remained confident of a 25 basis points interest rate cut in South Africa later this month.
Neil Roets, CEO of Debt Rescue SA, said the question of whether Trump’s presidency could influence South Africa’s interest rate decisions was a valid one, given the interconnected nature of global economies.
“While the South African Reserve Bank (Sarb) bases its decisions on local economic conditions, global factors, including the policies of major economies like the US, can’t be ignored,” he said.
Roets added that Trump’s proposed trade tariffs could disrupt global trade, slow economic growth, and even push inflation higher in some regions.
“These uncertainties could indirectly affect emerging markets like South Africa, prompting the Sarb to tread cautiously in its monetary policy. Domestically, South Africa’s inflation remains well within the Sarb’s target range of 3%-6%, providing room for further rate cuts in 2025.”
Roets said that Bloomberg Economics suggests we may see a 50-basis-point reduction by March.
“However, the Sarb has made it clear that its decisions will be data-driven and mindful of global risks, including the potential fallout from Trump’s policies.”
Anchor Capital co-chief investment officer, Nolan Wapenaar, said there were two or three interest rate cuts of 25 basis points each left in South Africa for 2025.
“A cut in January is, in our view, a coin flip. With the US Federal Reserve becoming more hawkish over December, we think that the Sarb will hold rates steady in January rather than waiting for the next meeting for the first cut of 2025,” he said.
“We don’t think that the Sarb will watch President Trump as much as they are likely to keep an eye on developments at the US Federal Reserve.”
Wapenaar added that the likely higher path of US inflation, higher global yields, and slower rate cutting abroad will spill over into the Sarb’s thinking.
“Still, our data will be supportive of further cuts in the first half of 2025, and we expect a few small cuts as a result.”
North-West University Business School economist, Professor Raymond Parsons, said that US President-elect Trump policies after January 20 have clearly injected much uncertainty and unpredictability into the global economic outlook.
“In the previous MPC statement released in November, caution was also already then expressed on the possible unintended consequences for SA’s small open economy of the emerging overall Trump economic agenda, especially for monetary policy,” he said.
Parsons added that while less inflation and other domestic high-frequency economic data in SA should encourage the Monetary Policy Committee (MPC) to continue with another 25 basis points cut in rates later this month, it will now need to keep a special wary eye on current US economic developments as well.
“It would therefore be surprising if, in these uncertain global economic circumstances, the MPC now opted for the bigger 50 basis points interest rate reduction.”
Johann Els, Old Mutual Group chief economist, said that Trump’s presidential win last November upset the base case economic view.
“Trump's policies will likely lead to upward pressure on inflation, and the Federal Reserve might be hesitant to cut rates too much. This might also strengthen the dollar, and the Sarb might be risk-averse and not cut interest rates as much,” Els said.
“I expect a rate cut of 25 basis points this month, but 50 basis points is definitely off the table, especially because of the strong dollar.”
BUSINESS REPORT