Cyril Ramaphosa was sworn in for a second term as president for the seventh administration last week Thursday. Ten political parties have agreed to form a government of national unity (GNU), and the markets will be waiting for the announcement of the cabinet in the next few days.
CPI for May remained steady at 5.2% y/y, diming hopes of an interest rate cut by the SARB at its next rate decision in July. The markets are only expecting the first interest rate cut in September.
International Market Developments
Last week saw lots of commentary from Federal Reserve officials as six regional Fed presidents and Fed governors spoke publicly. The speeches showed that policymakers are generally optimistic about the economic outlook and most expect inflation to trend toward the central bank’s 2% annual target. But Fed officials are in no rush to lower interest rates until they’re convinced that progress is sustainable.
The Reserve Bank of Australia announced its policy decision, maintaining its key interest rate at 4.35%, a 12-year high, to restrain inflation – which has been easing slower than expected. While medium-term inflation expectations are consistent with the target, the bank warned that the return of inflation to the target is “unlikely to be smooth”.
The UK’s BOE also kept its benchmark interest rate unchanged at 5.25% as expected. The central bank did, however, hint at its readiness to start trimming rates soon. The minutes further highlighted that some policymakers believed that recent data did not “alter significantly the disinflationary trajectory that the economy was on”.
Local Market Developments
Locally, CPI for May remained steady at 5.2% y/y, as expected. CPI increased by 0.2% m/m in May, after having increased by 0.3% m/m in April. Core CPI also moved sideways in May, coming in unchanged at 4.6% y/y. The SARB is expected to keep the repo rate unchanged at its next rate decision in July, with the first interest rate cut only expected in September.
Moody’s rating agency expressed encouragement that SA’s Government of National Unity (GNU) will support policy continuity and pursue economic reforms. It highlighted that the GNU has lowered the risk that parties with radical policies could have more grip on power. However, Moody’s noted that the “risk of potential instability in the government and its ability to deliver remain significant”. This comes as a new cabinet is expected to be announced in the coming days.