Daily Market Report – 30 May 2025
SARB’s Shift: Rate Cut + Inflation Target Pivot
What Just Happened?
- Repo Rate cut: 25bp → 7.25%
- Vote split: 5–1 (one dissent for 50bp cut)
- New inflation forecast (2025–2027): 3.2% → 4.4%
- Growth downgrade: 2025 real GDP revised to 1.2%
Structural Shift
- SARB initiates de facto inflation target transition toward 3%
- No formal mandate yet, but language and modeling hint at inevitability
- This creates a twofold implication:
- Near-term monetary easing path stays open
- Long-term rate expectations shift lower structurally
ZAR Resilience: Driven by Dollar Doubts, Not Just SARB Credibility
| Metric | Value |
|---|---|
| Spot USD-ZAR | 17.8300 |
| Range for the Day | 17.6050 / 17.9650 |
| Recent Low | 17.7565 (post-SARB cut reaction) |
Why ZAR Strengthened Post-Cut
- Market liked:
- SARB’s conservative tone
- Commitment to lower inflation
- Continued carry trade support as real yields remain globally competitive
- Global overlay: Weak USD = Broad EMFX boost
- Trump’s tariff reversal + court ruling undermining fiscal confidence
- Fears over $3.8 trillion fiscal gap in the US dented USD
Outlook
- Support: 17.6050 (Dec low)
- Resistance: 18.0650
If ZAR holds under 17.80, further rally is likely toward 17.60 — unless risk-off catalysts (e.g. equity selloff, US data shock) intervene.
Fixed Income: Real Rates ↓, Duration Appeal ↑
Bond Curve Dynamics
- SARB pivot = tailwind for bonds
- Flattening yield curve anticipated as long-end gets bid on structural rate shift
- R209 spread to US 10Y tightened sharply in past month (740bp → 618bp)
Macro Overlay
- Prudent fiscal narrative + greylist exit prospects = improving SA risk premium
- Market views this cut not as reflation, but as recalibration
FRA Curve: Expectations Firm for Another Cut
| FRA Tenor | Implied Cut |
|---|---|
| 2×5 | -24bp |
| 3×6 | 33bp |
| 6×9 | 45bp |
| 9×12 | 48bp |
| 12×15 | 50bp |
- Interpretation: Market now bakes in two cuts total for 2025
- Expectations pivot: Reduced inflation target = room to ease without destabilizing ZAR or inflation expectations
Global Context: USD Struggles to Hold Gains
Key Drivers:
- US fiscal credibility unraveling:
- Court ruling limiting tariff powers = weakened White House leverage
- Spending plans vs. weak Q1 GDP and labour data = Fed rate cut likelihood ↑
- Eurozone & Japan: Playing the slow game, but benefit from USD retreat
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