Last week saw a flurry of central bank activity. The US Federal Open Market Committee (FOMC) cut rates by 50 basis points, a big move aimed to preserve the strength of the US economy amid mounting risks to the labor market. Locally, the SARB’s Monetary Policy Committee (MPC) cut the repo rate by 25 basis points to 8.0%.
International Market Developments
Last Thursday, the US FOMC voted 11 to 1 to lower the Fed funds rate by 50 basis points, to a range of 4,75% – 5,00%. The committee said it had “gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance”. The Fed added that it is “committed to supporting maximum employment” in addition to bringing inflation back to its target. The substantial cut highlights concerns among policymakers about the US labor market. Fed Chair Jerome Powell said taking the step now would help to limit the chance of a full-blown downturn, while being careful to avoid committing to this as the new pace for rate reductions. Projections showed that a narrow majority, 10 of 19 policymakers, supported cutting rates by at least a further 50 basis points over the two remaining FOMC meetings this year.
Meanwhile in the UK, the Bank of England’s Monetary Policy Committee voted to keep the Bank rate on hold at 5%, as expected by investors. The decision was not unanimous, with one member, Swati Dhingra, voting for a further 25 basis points reduction. The key line from the minutes was that ‘for most members, in the absence of material developments, a gradual approach to removing policy restraint would be warranted’.
Local Market Developments
The SARB’s Monetary Policy Committee (MPC) cut the repo rate by 25 basis points, to 8%, as widely expected. It was a unanimous decision even though the MPC also considered a rate cut of 50 basis points. The Committee agreed that a less restrictive stance was consistent with sustainably lower inflation over the medium term. The bank expects CPI to average 4.6% (down from its previous estimate of 4.9%) in 2024, while CPI in 2025 is penciled in at 4.0% (previously 4.4%) and at 4.4% (previously 4.5%) in 2026. The Governor noted that the Committee’s main contribution is to deliver low and stable inflation, with well-anchored inflation expectations. The real GDP growth forecast is unchanged at 1.1% in 2024 with risks to the growth and inflation outlooks being assessed as balanced.
Looking ahead, the Governor noted that the MPC’s decisions will continue to be data dependent, and sensitive to the balance of risks to the outlook.