Last week, global markets remained sensitive to evolving U.S.-China tariff developments, with both nations exploring selective exemptions amid ongoing trade tensions. Locally, the decision to cancel the proposed VAT increase, combined with inflation dropping to a multi-year low, has raised expectations for potential interest rate relief as the Monetary Policy Committee (MPC) convenes this week.
International Market Developments
Global markets continue to respond to ongoing trade tensions between the United States and China, particularly regarding tariff policies. Recent developments indicate potential selective tariff exemptions, with China considering the removal of its 125% tariffs on specific U.S. goods, such as medical equipment and industrial chemicals. This follows the U.S. decision to exclude electronics from its 145% duties on Chinese imports. Negotiations remain ongoing, with China seeking concessions prior to further discussions.
In the U.S., Federal Reserve officials are closely observing these developments. Minneapolis Fed President Neel Kashkari noted that tariffs could contribute to inflationary pressures but suggested no immediate need for interest rate adjustments. Similarly, Chicago Fed President Austan Goolsbee advocated for a cautious approach, citing uncertainty surrounding the impact of tariffs on global supply chains. President Trump expressed dissatisfaction with the Federal Reserve’s pace of rate reductions but ultimately refuted speculation about replacing Chair Jerome Powell.
Last week, global markets remained sensitive to evolving U.S.-China tariff developments, with both nations exploring selective exemptions amid ongoing trade tensions. These dynamics continue to shape economic outlooks and supply chain strategies. Locally, the decision to cancel the proposed VAT increase, combined with inflation dropping to a multi-year low, has raised expectations for potential interest rate relief when the Monetary Policy Committee (MPC) next convenes.
The International Monetary Fund (IMF) revised its 2025 global growth forecast downward to 2.8%, a reduction of 0.5 percentage points from its January projection. This downgrade reflects heightened trade conflicts and financial market volatility. Growth in advanced economies is now projected to grow at 1.4%, with emerging markets expected to achieve 3.7% growth. Specifically, the U.S. growth forecast was adjusted down to 1.8%, while China’s growth is anticipated at 4.0%, underscoring ongoing economic challenges.
Local Market Developments
Finance Minister Enoch Godongwana announced the cancellation of the proposed 0.5 percentage point VAT increase, maintaining the current rate at 15%. This decision, finalized following consultations within the Government of National Unity (GNU), resolves prior disagreements between the ANC and DA. However, it is projected to result in a R75 billion revenue shortfall over the medium term.
The South African Reserve Bank (SARB) reported that March CPI inflation fell to a multi-year low of 2.7% year-on-year, driven by lower oil prices, with April figures expected to remain near 2%. Governor Lesetja Kganyago cautioned that global economic uncertainties and weakened confidence since October 2023 could lead to sustained higher interest rates. The Monetary Policy Committee (MPC) is scheduled to meet on 28-29 May to review the repo rate. Given global trade risks and rand volatility, the SARB is likely to maintain the current repo rate at this meeting despite the recent easing of inflation.