Inflation: Headline CPI ticked up to 3.2% y/y in January, from 3.0% y/y in December 2024. Despite the CPI uptick, inflation remains within the SARB’s target range and well below the 4.5% mid-point.
Repo rate: The SARB cut rates 25bp at the third consecutive meeting in January to take the repo rate down to 7.50%. Between now and the end of 2025, the SARB may cut one more time, with investors happy to adopt a wait-and-see approach. A volatile ZAR could undermine the SARB’s inflation-fighting efforts and ensure a more conservative monetary policy stance through the months ahead. Therefore, given recent international developments, it is prudent for the SARB to be cautious.
GDP Growth: The SA GDP expanded by 0.6% q/q from -0.3% q/q in Q3. On a year-on-year basis, GDP growth came in at 0.9% y/y in Q4, up from Q3’s 0.3% y/y. Agriculture saw the most significant rebound, expanding by 17.2% after a sharp -28.8% decline in Q3, driven primarily by increased economic activity in field crops and animal products. This slight uptick will likely continue into 2025. However, economic growth will likely fall short of the government’s 3% target, which requires foreign investment to revitalise the nation’s neglected infrastructure.
Currency: The ZAR remains near risk-adjusted fair value. Since the start of the year, the ZAR has remained resilient and sentiment within the derivatives market suggests that this will continue, with the prospect of further appreciation still alive. Should some ZAR depreciation emerge, it will unlikely persist
Offshore conditions: Financial markets appear to be re-assessing their view of “US Exceptionalism”, where US economic growth and interest rates remain higher than the main trading partners of the US. Trump’s policies aimed at reducing the government budget deficit will take away a key pillar of support that the economy enjoyed in recent years. A reduction in government spending will slow GDP growth, and allow the Federal Reserve to further ease monetary policy. The risk is that lower growth negatively undermines lofty US stock market valuations, generating volatility within the markets potentially forcing the Fed to step in to provide a stabilising force through lower rates.
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