Global markets face uncertainty as the US Federal Reserve holds rates steady amid policy and trade concerns. President Trump’s suspension of US aid to South Africa over land expropriation policies raises diplomatic concerns. The SARB cut the repo rate by 25 basis points to 7.50% to support growth amid subdued inflation. Investors are focused on President Ramaphosa’s upcoming SONA this week, anticipating key economic policy updates amidst lingering geopolitical and inflationary risks.
International Market Developments
The US Federal Reserve kept its federal funds rate unchanged at its most recent Federal Open Market Committee (FOMC) meeting, a decision that aligns with market expectations. Fed Chair Jerome Powell cited widespread uncertainty surrounding the Trump administration’s policies, including immigration, tariffs, fiscal measures, and regulatory changes, as the rationale for the cautious stance. Powell emphasized that interest rates remain “meaningfully” above the neutral level, signalling that policymakers are not in a hurry to lower rates further. Key regional policymakers also shared their perspectives with Austan Goolsbee (Chicago Fed President) urging a cautious approach and emphasizing the need to gauge the long-term impact of tariff measures before further rate reductions. Raphael Bostic (Atlanta Fed President) echoed this sentiment, highlighting the importance of evaluating the economic impact of the 100 basis points of cuts made thus far.
In terms of economic performance, US GDP growth undershot expectations in Q4 2024, increasing by 2.3% quarter-on-quarter (annualized), down from 3.1% in Q3. Consumer and business spending drove this growth, supported by rising wages and employment levels.
Trade tensions remain a significant concern. President Donald Trump announced a one-month postponement of the 25% tariffs on Canada and Mexico, while tariffs on China have taken effect. In response, China imposed retaliatory measures, including a 10% tariff on US crude oil and other goods, escalating trade tensions between the two superpowers.
Local Market Developments
On the local front, President Donald Trump announced the suspension of US aid to South Africa due to concerns over the country’s land expropriation policies. The decision may have long-term diplomatic and economic implications.
President Cyril Ramaphosa is expected to address the nation during the 2025 State of the Nation Address (SONA) on Thursday, where investors will closely watch for updates on the government’s economic priorities and reform agenda.
In monetary policy, the South African Reserve Bank (SARB) reduced the repo rate by 25 basis points to 7.50%, as anticipated. Four members of the Monetary Policy Committee (MPC) supported the decision to cut rates, while two preferred maintaining the existing rate. The SARB highlighted that this decision was driven by the need to reduce the restrictiveness of the current policy stance considering subdued inflation pressures.