SARB holds rates steady, signalling a future inflation target of 3%

The South African Reserve Bank (SARB) held the repo rate steady at 7%, highlighting its continued focus on inflation risks. Although consumer inflation unexpectedly slowed to 3.30% in August, policymakers cautioned that underlying price pressures are still trending higher. SARB forecasts headline inflation to average 3.40% in 2025 and 3.60% in 2026, before easing back to 3% in 2027. Working alongside the National Treasury, the SARB is also considering narrowing the inflation target to a 3% anchor, moving away from the current 4.50% midpoint. "Stabilising inflation at 3% implies a lower long-term policy rate,” Governor Lesetja Kganyago said, adding that the MPC intends to finalise the reform in coordination with the Treasury at the earliest feasible opportunity.

In fixed income markets, the yield on South Africa’s 10-year government bond edged up to around 9.20%, though it remains close to the lows seen earlier this year. Investors continue to favour local bonds, drawn by strong real returns and the sizeable premium over US Treasuries, particularly as expectations for further US rate cuts gain traction. Sentiment is further supported by credible monetary policy, a fairly valued rand, and gradual structural improvements, including a more reliable electricity supply, the stability of a coalition government and measures to strengthen the fiscal outlook. At 19h14 SAST, the rand strengthened to R17.34 against the US dollar.

US equities advanced despite market volatility following the Fed’s first rate cut of the year. The S&P 500 gained 0.73%, the Nasdaq rose 1.19% and the Dow Jones Futures added 0.55%. Market swings followed the announcement and Chair Jerome Powell’s press conference, where he labelled the move a “risk management” cut and highlighted the challenges of steering policy amid uncertainty. Initial jobless claims also surprised to the downside, falling to 231K from a four-year high and easing concerns over labour market weakness.

On the corporate front, Nvidia climbed more than 2%, while Intel surged nearly 24% after confirming a $5 billion investment from Nvidia for a minority stake. Meta also edged higher, closing up 0.70%.

European stocks soared on Thursday, led by strong gains in the technology sector, as investors assessed recent central bank policies and their implications for global interest rates. The Bank of England held rates steady at 4% in a 7-2 vote, maintaining its “cautious and gradual” approach to easing while slowing quantitative tightening from £100 billion to £70 billion annually, with sales focused on shorter-dated gilts. Inflation projections remained broadly unchanged, while traders modestly increased bets on long-term easing, now pricing in 45 basis points of cuts by the end of 2026, though expectations for reductions this year stayed largely steady.

The FTSE 100 closed 0.21% higher. The STOXX 50 ended at 5 456.67, up 1.62%, while the broader STOXX 600 rose 0.80% to 555.01 points. Technology shares led the rally, with ASML surging 7.70% and SAP, Infineon and Nokia gaining between 2% and 5%. Industrial heavyweights also advanced, as Schneider, Safran and Wolters Kluwer added between 2% and 6%.

Asian markets closed mixed as investors digested the impact of the Fed’s rate cut. Hong Kong’s Hang Seng fell 1.30% to 26 558.12, while China’s Shanghai Composite slipped 1.08% to 3 834.67 amid caution over regional economic conditions. In contrast, Japan’s Nikkei rose 1.15%, supported by more positive investor sentiment.

Commodities delivered a divergent performance, with gold down 0.40% at $3 644.96 an ounce and silver inching up 0.43%. Platinum stood out, surging 1.92% as the day’s strongest performer, while Brent crude retreated 0.65% to $67.51 per barrel.