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Lisette IJssel de Schepper
As expected, the SA Reserve Bank (SARB) just announced that it would keep the repo rate unchanged. While inflation expectations remain anchored and the inflation outlook is also relatively benign (see domestic section), the SARB remains concerned about potential upside risks to inflation and deemed it prudent to hold policy settings unchanged. For now, we suspect that should there be more certainty and continued favourable developments (US Fed cuts, lower oil prices and a stronger rand), the SARB may cut rates again later in the year.
BER Clients can find a more detailed Comment on the interest rate decision here.
The SARB's decision to keep rates on hold was in line with the general global monetary policy trend – with the Swiss National Bank (SNB) bucking the trend and lowering its interest rate once more. The policy rate is now at 0.25%, but the general expectation is that it will remain at this level for some time, with the risk of negative interest rates deemed relatively low. The Bank of Japan (BoJ) kept rates steady early in the week (the ‘other’ option would have been a hike, the BoJ going against most other global central banks as it is tightening policy). The Bank of England (BoE) kept its monetary policy settings unchanged and turned a little less dovish about the path going forward amid sustained concerns about inflation. There was also no change announced by the Swedish Riks Bank, as was widely expected. The People’s Bank of China decided to keep benchmark lending rates for Chinese banks unchanged for a fifth straight month, as officials leave open room for stimulus in the likely case that US tariffs rise again. Finally, the US Federal Reserve (Fed) kept its interest rate unchanged but dialled back the pace of quantitative tightening. The international section has the details about how the Fed lifted its inflation forecast and lowered growth. Meanwhile, amid growing concerns about the US economy, the Eurozone's story is turning more positive. Germany’s parliament approved chancellor-in-waiting Friedrich Merz’s plan to ramp up military and infrastructure spending by about €1 trillion.
A broader trend of 2025 has been that amid increased worries about the strength of the US economy, markets have started to reprice in rate cuts for later in the year. This has helped weaken the dollar and support the rand. For more on recent rand drivers, click here. Sentiment towards emerging market currencies, including the rand, soured a bit when news broke that Turkish President Recep Tayyip Erdogan had detained a top political rival, triggering the worst sell-off in Turkish financial assets in years.
Elsewhere on the global geopolitical front, Israel shattered the fragile ceasefire in Gaza by bombing the region. Israel’s prime minister later warned that these strikes were just the beginning and accused Hamas of rejecting proposals to free more hostages. Indeed, Israel’s military has restarted limited ground operations in Gaza. Meanwhile, Russian President Vladimir Putin continues to oppose an immediate 30-day ceasefire but takes small steps to show he is willing to work towards it (to keep the US happy). During the week, Russia and Ukraine both Russia agreed to stop targeting each other's energy infrastructure for now.
Closer to home, last week ended with a further escalation of the tension between the US and SA when the US declared Ambassador Ebrahim Rasool a persona non grata. We had another, very brief return of load-shedding, but annual growth in January retail sales was much faster than expected (see the domestic section below). There was more potentially, positive domestic news, with ArcelorMittal and the government reportedly close to reaching a deal. The deal must, of course, help solve the structural issues that led to the announcement of the closure in the first place. Otherwise, it will merely be a delay in the execution.
The next BER Weekly Review will be released on Friday, 28 March.
Next will provide more insights into the consumer's performance during 2025Q1. On Monday, the BER releases the Retail Trade Survey (which includes a discussion of the wholesale sector and vehicle dealers' results), followed by the FNB/BER Consumer Confidence Index (CCI) on Tuesday. The CCI’s recovery stalled towards the end of last year, although at -6, it was still the best festive-reading print since 2019. The CCI gives an idea of consumers’ willingness to spend, with recent developments on consumers’ ability to spend not being so positive (including today’s decision to keep the repo rate on hold and the barrage of tax increases in the 2025 Budget).
On Thursday, Stats SA will publish factory gate inflation (or the producer price index, PPI) for February. We expect annual headline PPI to accelerate from 1.1% in January to about 1.7%.
Of course, there will be lots of interest in further negotiations around Budget 2025 in the coming days – with lots of risks, and opportunities. The Democratic Alliance has reiterated its stance that economic reforms are an important component for ultimately supporting the budget. These include a tender process for the commissioning of the Cape Town and Richard’s Bay in 2025, amendments to the Expropriation Act, a full regulatory review of the state by the World Bank, and the approval of a passenger rail devolution strategy to be developed and approved by 31 December 2025.
On the international front, we see flash PMI prints for the major global economies for March. It will be interesting to see if forward-looking expectations are adjusting now that the trade war is heating up. The PMI is also designed to be one of the first indicators to pick up on actual changes in demand and output. US durable goods orders, out on Wednesday, will be closely watched as a sign of the strength of underlying demand in the economy. Some of the survey-based sentiment indicators have started to dip, but actual activity has remained relatively strong (so far). The biggest release from the US will be on Friday when the Fed’s preferred measure on inflation is published.
Headline consumer price inflation held steady at 3.2% y-o-y in February, undershooting consensus expectations for an acceleration to 3.4%. Notably, prices accelerated in the food and beverages subcomponent (up 2.8% y-o-y in February vs. 2.3% in January) but this was offset by significantly softer price increases in miscellaneous goods and services (1.1% vs. 5.9%) and continued deflation in the transport subcomponent (-0.5% vs. -0.2%). On a monthly basis, headline CPI rose by 0.9% in February, up from a 0.3% rise in the prior month. As expected, the monthly increase in headline CPI was largely driven by insurance and financial services increasing by 0.6% m-o-m – although the rise was not as fast as expected. Lastly, annual core inflation, which excludes food and energy costs eased to 3.4% y-o-y in February.
On the inflation outlook, the BER survey shows that average expectations for headline CPI inflation in 2025Q1 were revised slightly lower for the current year, down from 4.5% to 4.3%. This was despite a slight uptick in reported annual inflation between the two survey periods (from 2.8% in October to 3.2% in January). Compared with their previous forecast of inflation in 2025, analysts, business people and trade unions all revised their 2025 forecasts downward, but for 2026, only analysts reduced their predictions, while trade unions increased theirs and business people maintained their previous outlook. Meanwhile, household inflation expectations for one year ahead fell to their lowest in three years (5.7%, down from 6.6% in 2024Q4). For the full report, click here.
Stats SA’s first batch of domestic trade data for the year points to a continuation of the strong consumer spending observed in the latter part of 2024. Outpacing consensus expectations for a more modest 3.9% y-o-y rise, real retail sales surged by 7% y-o-y in January, after an upwardly revised 3.2% gain in December 2024. This expansion was led by a rise in sales amongst general dealers (+8.4% y-o-y; adding 3.6% pts) and retailers of clothing and footwear (+10.1% y-o-y; +1.6% pts). Seasonally adjusted (sa) retail sales rebounded by 1.2% m-o-m following a 0.4% m-o-m increase in the prior month.
On an annual basis, real motor trade sales also fared better, rebounding by 0.2% in January, after a steep 4.3% decline in the prior month. The majority of the gains came from robust used vehicle sales (+8.8% y-o-y; +1.7% pts), but encouragingly, new vehicle sales (+2.9% y-o-y; +0.7% pts) also added to the annual figure. On a monthly basis, sales rose by 0.7%, following a 1.5% gain in December.
However, wholesale performance stood in stark contrast; real wholesale trade sales contracted by 1.3% y-o-y at the start of the year, following a downwardly revised 0.2% rise in the prior month. After increasing by 2% m-o-m in December, real trade sales (sa) declined by 0.1% m-o-m in January.
An electricity tariff increase of 12.74% will take effect on 1 April. Meanwhile, Eskom indicated that it would press ahead with the tariff reform. This includes positive steps to increase support for the transformation of the electricity supply industry by aligning prices with NERSA-approved costs for generation, transmission (for the National Transmission Company of South Africa—NTCSA), and distribution services.
For Eskom direct customers, the retail tariff plan unbundles the energy charges into variable time-of-use charges, as well as fixed charges that are made up of a generation capacity charge and a so-called legacy charge to recover costs from the renewables programme. Residential Homelight customers will no longer have to pay a higher price for consumption above 350kWh and instead will pay the same cent per kilowatt-hour (c/kWh) for all their consumption.
The US Fed unanimously voted to keep its Federal Funds rate at 4.25%-4.5%. Despite noting solid economic growth and stable unemployment, the Fed acknowledged rising economic uncertainty and persistent inflation in its statement. According to Fed officials, risks to growth and inflation have increased, reflected in a downward revision of the 2025 GDP forecast to 1.7% y-o-y (from 2.1%) and an upward revision of core PCE inflation by 0.3pt) to 2.8% compared to December. The Federal Open Market Committee (FOMC) maintained its projection for 50bps worth of rate cuts in 2025, though the distribution of officials’ expectations leaned more hawkish. Despite this, markets remained optimistic, likely buoyed by Fed Chair Powell’s statement that tariff-related inflation would be “transitory.” Indeed, the Fed left its 2026 and 2027 forecasts for core PCE unchanged. Finally, the Fed slowed the pace of quantitative tightening, reducing Treasury security offloading from $25bn to $5bn per month. US stocks rose after the decision.
In other US data, retail sales edged up by just 0.2% m-o-m in February, following a 1.2% decline in January. This signals a potential weakness in consumer spending, a key driver of economic growth. In contrast, industrial production jumped by 0.7% m-o-m, above expectations. The increase was driven by an 8.5% surge in motor vehicle and parts production as manufacturers look to build inventory in anticipation of additional tariffs.
The BoE held its Bank Rate steady at 4.5%, as widely expected, with an 8-1 vote. One member preferred a 25 bps) cut. In its statement, the BoE highlighted mounting global trade uncertainty, with new US tariffs triggering responses from other governments. Geopolitical tensions have also escalated, fueling financial market volatility. Despite slightly stronger-than-expected UK GDP growth, business surveys continue to point to economic weakness, particularly in hiring trends. Meanwhile, domestic price and wage pressures are easing but remain elevated. With inflation still a concern, the MPC stressed the need for a gradual and cautious approach to easing policy. The BoE forecasts CPI inflation to hit 3.75% in 2025Q3, while the latest Market Participants Survey (MaPS) sees a slightly lower peak at 3.5%. MaPS respondents expect 75bps of rate cuts this year, though market pricing suggests a more conservative 50bps. Uncertainty remains high, with risks skewing toward fewer rate cuts in the near term.
According to the Office of National Statistics (ONS), the UK unemployment rate remained steady at 4.4% in the three months to January 2025, matching expectations. Meanwhile, the UK employment rate rose to 75%. Annual growth in employees' average regular earnings, excluding bonuses, in the UK was 5.9% from November 2024 to January 2025. In addition, the estimated number of vacancies in the UK from December 2024 to February 2025 was 816 000, unchanged from the previous quarter. The BoE will watch whether the mandated increase in employers’ social security contributions in April will impact vacancies and the unemployment rate.
The ZEW Economic Sentiment indicator for the Eurozone (EZ) surged by 15.6 points in March to an eight-month high, with nearly half of the surveyed analysts expecting improved economic activity. Lower inflation and the sixth consecutive policy interest rate cut likely bolstered confidence. Focusing on the bloc’s largest economy, German sentiment soared by a mammoth 25.6 points to 51.6, driven by optimism over fiscal policy, including a multi-billion-euro federal budget package. The outlook for key industries like metal, machinery, and steel production is also improving. While the rating of current conditions remained deeply negative, respondents are significantly more optimistic about the future.
As mentioned above, EZ inflation eased to 2.3% y-o-y in February, slightly below the initial estimate of 2.4%. Core inflation, which excludes food and energy, dropped to 2.6%, its lowest since January 2022. Meanwhile, EZ wages grew by 4.1% y-o-y in 2024Q4, marking the slowest pace of the year. Among major economies, wage growth slowed in France (1.7% vs 2.7%), Spain (3.2% vs 4.9%), and Belgium (2.2% vs 2.6%), but accelerated in Germany (4.4% vs 4%), the Netherlands (6.2% vs 5.9%), and Ireland (5.4% vs 5.2%). Hourly labour costs rose by 3.7% y-o-y, the slowest increase since 2023Q3.
China’s industrial production grew by 5.9% y-o-y in January and February. Due to the Lunar New Year, January and February data is combined for a better annual comparison. Mining output grew by 4.3% y-o-y, while manufacturing growth eased to 6.9%.
Retail sales rose by 4.0% y-o-y in the first two months of the year, up from 3.7% in December, marking the strongest growth since October. The Spring Festival boosted consumption.
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@sun.ac.za
Click here for previous editions of this publication.
Please refer to the glossary on the BER website for explanations of technical terms.
Thursday, 20 Mar 2025
