Last week, U.S. Federal Reserve (Fed) signaled potential interest rate cuts in the coming months as inflation risk is perceived to have diminished. South Africa’s inflation for July also cooled, paving the way for potential rate cuts by the SARB in September, potentially bringing much needed relief for South African consumers.
International Market Developments
U.S. Federal Reserve (Fed) Chair Jerome Powell, speaking at the Jackson Hole Symposium, hinted that the time may be ripe for interest rate cuts. Powell stated that the path forward is clear but remains dependent on evolving data and risk assessments. He expressed growing confidence that inflation is moving sustainably towards the Fed’s 2% target. There remains concern that economic growth may have been sacrificed to meet inflation targets, underscoring the need to carefully manage the pace of rate cuts to avoid triggering a recession. Minutes from the Fed’s July meeting also revealed that several policymakers believed conditions were favorable for a rate cut, although they had voted to keep rates unchanged for now. Investors are now focused on upcoming data releases and have priced in rate cuts from as early as September.
Bank of England (BOE) Governor Andrew Bailey also weighed in on monetary policy at Jackson Hole. While cautioning that it is “too early to declare victory” over inflation, Bailey suggested that risks are diminishing. His remarks hinted at a growing confidence in the possibility of future rate cuts, although no explicit guidance was given for the next BOE meeting.
On the commodities front, oil prices surged due to escalating geopolitical tensions. Conflicts involving Israel, Lebanon, Russia, and Ukraine, coupled with Libya declaring force majeure on oil facilities, all pushed oil prices higher. Meanwhile, gold prices have increased by 22% year-to-date.
Local Market Developments
South Africa’s inflation has eased more than anticipated, with July’s Consumer Price Index (CPI) moderating to 4.6% year-on-year, down from 5.1% in June. Core inflation also saw a slight decline. These developments suggest that the South African Reserve Bank (SARB) may commence a rate-cutting cycle at its upcoming September meeting, aligning with broader global trends in monetary easing.