Last week, markets were dominated by reserve bank activity. In the US, the Federal Open Market Committee (FOMC) voted 9-2 to maintain the federal funds rate at 4.25%–4.5%, extending the pause seen throughout the year. Locally, the SARB unanimously delivered a 25-basis point rate cut in-line with market consensus, taking the policy rate to 7.00%.
International Market Developments
Last week, the Federal Open Market Committee (FOMC) voted 9-2 to maintain the federal funds rate at 4.25%–4.5%, extending the pause seen throughout the year. Dissenting votes came from Governors Christopher Waller and Michelle Bowman (both Trump appointees) who favored a 25-basis point cut. The dissenting votes were seen by some as a move to strategically position themselves for the Fed Chair position if President Trump successfully fires Jerome Powell. Current Chair Jerome Powell cited persistent economic uncertainty and a slowing economy as reasons to keep policy unchanged, stating, “It doesn’t feel like we are very close to the end of that process.” President Donald Trump has continued to pressure the Fed publicly, advocating for rate cuts and even suggesting Powell’s removal, an action widely considered unlawful and likely to spark legal battles. Despite this political interference, Powell emphasized that current interest rates remain appropriate for managing risks tied to tariffs, inflation and global volatility. The Fed’s steady stance aims to balance economic headwinds while maintaining credibility amid increasing political scrutiny.
Looking ahead, we continue to monitor developments and trade negotiations in the US, particularly considering the August 1st deadline set by the Trump administration. The outcome of these decisions may have material implications for global trade dynamics, market sentiment and monetary policy direction.
Local Market Developments
Last week, the South African Reserve Bank (SARB) unanimously cut the repo rate by 25 basis points to 7.00%, in line with market expectations. The move followed a downward revision in inflation forecasts through to 2027, now anchored to a 3% steady state. Inflation is projected to average 3.3% in 2025 (unchanged) and has been revised lower to 3.3% and 3.0% for 2026 and 2027 respectively from previous estimates of 4.2% and 4.4%. This outlook suggests a repo rate near 6.00% by Q4 2026. Importantly, the SARB made a notable policy shift, stating it will now explicitly target the bottom of the 3–6% inflation band moving beyond the informal signalling seen in May. While the formal review of the target range with National Treasury is ongoing, Governor Kganyago emphasized the need to use the current low-inflation environment to entrench lower inflation expectations and build long-term price stability.
Looking ahead, the SARB’s gross and net reserves for July are scheduled for release on Thursday. Gross reserves were $68.42bn in June and net reserves $65.22bn.