The US monetary policy path remains unclear amidst the ongoing tariff uncertainty as markets expect the Fed to keep its benchmark rate unchanged at the upcoming meeting later this month. Local CPI data is due out this week, with inflation expected to print at 3.1% with markets pricing in a 25-basis point repo rate cut.
International Market Developments
The United States’ monetary policy continues to attract significant attention amid differing perspectives from Federal Reserve officials. San Francisco Fed President Mary Daly indicated that two interest rate reductions within the year would be appropriate, warning that prolonged delays in easing policy could inflict undue economic harm. Fed Governor Christopher Waller also endorsed rate cuts to support a softening labour market, asserting that tariff-induced price pressures would likely result in only a transitory rise in inflation. In contrast, Fed Governor Adriana Kugler advocated for sustaining the current restrictive policy to stabilise inflation expectations, citing rising inflation driven by tariffs.
US CPI for June rose to 2.7% y/y (from 2.4% in May), with a 0.3% m/m increase, in line with expectations. Core CPI, however, was softer at 0.2% m/m, supporting potential rate cuts, though the Fed may delay decisions to assess further tariff impacts. The markets expect the Fed to hold its benchmark rate steady in the 4.25%-4.50% range at its July 29-30 meeting, a level policymakers regard as at least moderately restrictive.
China’s Q2:25 GDP growth was 5.2% y/y, exceeding expectations, driven by strong exports to non-US markets despite weaker domestic demand. Industrial output rose 6.8% y/y in June, while retail sales slowed to 4.8% y/y, and home prices continued to decline, prompting expectations of further government measures to boost consumption.
Local Market Developments
Locally, Governor of the South African Reserve Bank Lesetja Kganyago spoke at a G20 meeting, expressing confidence that inflation will remain well within the 3-6% target range over the next two years. However, he highlighted the uncertainties arising from US tariffs, which have cast a shadow over the economic outlook and complicated the policymaking process.
June CPI data, due Wednesday, is expected to show a rise to 3.1% y/y from 2.8% in May, still well below the inflation target midpoint, of 4.5% y/y. Core CPI is expected to remain steady at 3.0% y/y. The subdued inflation and growth points to a repo rate cut, and as such the markets have priced in a 25bps repo rate cut at the upcoming MPC meeting. Discussions about a lowering of SA’s inflation target have added uncertainty to the path for monetary policy going forward, but this announcement is only expected in the next few months.