Traders had to scale back on their speculation for South Africa’s interest rates this year. The markets are now pricing in only one as they decipher the Federal Reserve’s preference to move slower on rates and United States president-elect Donald Trump’s intentions on imposing tariffs. South African Reserve Bank Governor Lesetja Kganyago has repeatedly said the monetary policy committee would proceed with caution on the rates as the outlook remains uncertain, even as its modelling signals further cuts on the horizon. Forward-rate agreements, used to speculate on burrowing costs, are now pricing in just a single 25- basis- point rate cut in 2025, at the country’s central bank’s Jan. 30 monetary policy committee meeting.
Forward-rate agreements, used to speculate on borrowing costs, are now pricing in just a single 25-basis-point rate cut in 2025, at the central bank’s Jan. 30 monetary policy committee meeting. Marek Drimal, a strategist at Societe Generale in London, said in a note to clients the central bank may even delay the cut until March due to less favorable market and external financial conditions. His and the market’s view is contrary to what most economists expect for this year. They foresee two 25 basis point cuts this quarter to 7.25% and another by the third, bringing the bank’s total reductions since it started its easing cycle in September to 125 basis points.
Governor Lesetja Kganyago has repeatedly said the monetary policy committee would proceed with caution on rates as the outlook remains uncertain, even as its modelling signals further cuts on the horizon.
When we are talking about forward-rate agreements, we are referring to future interest or exchange rates, which allow market participants to anticipate and plan for potential economic shifts. The economic shift being discussed is a reference to the tariffs that will be imposed by the new US President Donald Trump as soon as he is sworn into office on twentieth of January. Trump has sworn to impose trade tariffs on South Africa taxing heavily on the country’s trade with America. Trump and his entourage’s decision to impose tariffs on South Africa and other BRICS member states, is due to their decision to attempt to trade in local currencies rather than the dollar. This has led to BRICS nations bracing themselves economically against any measures imposed by the incoming administration in Washington.
Pretoria and the Reserve Bank is doing everything in their power to shield the rand against inflation. From repercussion that can come in any direction. The United States would not be so easy to deter given its vast area and diverse economy. China, a BRICS nation likewise is vast and heavily industrialised.
Meanwhile corruption remains a problem. Especially in the South African National Roads Agency (Sanral) which is facing the firing line over selling tenders to the highest bidders.
Sanral in hot water: The South African National Roads Agency (Sanral) is under scrutiny over misleading claims about awarding R53 billion in tenders since April 2024. While CEO Reginald Demana reported the figure, Sanral spokesperson Vusi Mona clarified that the R53 billion included all tender types, not just open tenders. A review of Sanral’s website revealed only R13.6 billion in tenders awarded, casting doubt on the original claim. [Moneyweb]
The trouble with ostracising South Africa: Scholars at the Centre for Strategic & International Studies argue that it would not be in the United States’ national interest to cut economic ties with South Africa. Despite discussions among Trump administration officials, they believe both countries will recognise the mutual benefits of their relationship. [Business Day]
The Sanral scandal is possibly the most disturbing scandal to hit the country. Sanral is the overall agency that oversees South Africa’s roads. R53million in tenders has now been squandered when it should have been put to better use repairing the roads and bridges as well as constructing new ones. The abuse of power and authority by Sanral may not go unpunished. The truth concerning how much was spent on tenders may come to light following further and more thorough investigations.
Trade relations between nations are intricate and complex. If Trump persists in his trade war with BRICS nations like Brazil, Russia, India and China he risks isolating Washington. The United States may dominate both coasts of the Pacific and Atlantic Oceans, but SA is the gateway and conduit of the African continent. To underestimate and blockade its potential and flexibility could lead to South Africa becoming closer to its fellow BRICS members. India in particular is a close ally of Washington and isolating New Delhi also carries great risk.
South Africa is close to India as an ally as it is with Russia and China. Pretoria and Reserve Bank Governor Kganyago may turn this sour situation of imposing tariffs to their advantage. It depends on how the forward-rate agreements are manoeuvred. At this moment it is still early to tell what international decisions Trump takes.
Article written by:
Yacoob Cassim
Journalist at Radio Al Ansaar
