All eyes are on monetary policy this week with the release of the December CPI print, the first SARB MPC meeting for 2024, and the Fed implying that US rate cuts are not expected to happen as soon as markets currently anticipate.
International Market Developments
The Fed’s Raphael Bostic stated that policy rate cuts are not expected to happen as soon as the markets currently anticipate following the recent CPI data print. The December CPI printed higher than expectations at 3.4% versus 3.2%, while the core number stood at 3.9% compared to 3.8%. This led to a risk-off sentiment, resulting in a spike in 10-year US Treasury yields from 4.08% to 4.14%. Inflation would have to fall closer to the Federal Reserve’s 2% goal over time before it would be appropriate to begin the process of lowering the policy rate to prevent policy from becoming overly restrictive.
UK CPI overshot expectations in December, increasing by 4.0% y/y (and against expectations for a moderation), from 3.9% y/y in November. Core CPI remained unchanged at 5.1% y/y in December; services inflation also increased in December. The CPI data rattled investors who had been optimistic about a rate cut as early as March 2024.
The monetary policy picture in the developed market is that inflation has been slowing down gradually but remains above central bank targets. The big uncertainty of 2024 is about when central banks will start cutting interest rates.
Local Market Developments
Locally, we have CPI on Wednesday and the first MPC meeting of the new year is scheduled for Thursday. Market estimates for headline CPI have eased to 5,2% YoY in December 2023, from 5,5% in November, taking the annual rate to 5,9% for 2023. Expectations for the upcoming MPC announcement are for the repo rate to remain unchanged at 8,25%, but there may be room to reduce rates during the year as inflation recedes.