Last week, the Federal Reserve lowered the policy rate by 25 basis points to a range of 3.5%–3.75%, in line with our expectations, taking interest rates to their lowest level since 2022. Locally, National Treasury successfully issued R11.8 billion under South Africa’s first Infrastructure and Development Finance Bond.
International Market Developments
Last week, the Federal Reserve lowered the policy rate by 25 basis points to a range of 3.5%–3.75%, in line with our expectations, taking interest rates to their lowest level since 2022. The decision was notably split, with three dissenting votes, an uncommon outcome last seen in September 2019. One policymaker argued for a larger 50 basis point cut, while two preferred to leave rates unchanged. Policymakers’ projections for the federal funds rate were unchanged for September, continuing to signal only one additional 25 basis point cut in 2026. On the macro-outlook, growth forecasts were revised higher, with GDP expected to expand by 1.7% in 2025 (from 1.6%) and 2.3% in 2026 (from 1.8%). Inflation expectations, as measured by PCE, were trimmed slightly to 2.9% for 2025 (from 3.0%) and 2.4% for 2026 (from 2.6%). Unemployment projections were left unchanged at 4.5% in 2025 and 4.4% in 2026.
Looking ahead, US non-farm payroll data is due for release on Tuesday.
Local Market Developments
Last week, National Treasury successfully issued R11.8 billion under South Africa’s first Infrastructure and Development Finance Bond. Proceeds from the issuance will support projects approved under the Government’s Budget Facility for Infrastructure (BFI), a budgetary mechanism designed to accelerate the execution of nationally prioritised infrastructure projects. The RI2036 bond was priced at 8.575%, compared with the 10-year benchmark government bond trading at around 8.51% at the time. This implies a yield premium of roughly 6.5 basis points, which is notably tight for a debut issuance with a dedicated infrastructure mandate. The RI2041 bond was priced at 9.13%. The RI2041 appears to have been issued at or marginally below prevailing long-term government bond yields, underscoring similarly tight spread conditions at the longer tenor.
Looking ahead, South Africa’s CPI data for November is due to be released on Wednesday. Annual inflation is forecast to print at 3.7% up from 3.6% the month prior while core inflation is expected to have increased to 3.2% from 3.1%.