Markets are expecting a later start to the interest rate cutting cycle in the United States and also South Africa, which is causing some mild volatility in the rand as the mood shifts from hopeful to pragmatic.
According to Investec chief economist Annabel Bishop, the volatility seen in March was driven by market expectations around interest rates in the United States, which fed into other markets, including South Africa. “The push-back in US rate cut timing expectations has come as the US core PCE deflator remained at an uninspiring 2.8% y/y in the latest February outcome, unchanged from the previous month, and in line with market expectations.
“Markets have been disappointed by the FOMC’s communications from the point of view of being supportive of rate hikes. Instead, Chair Powell is dismissive of any short-term need for a cut, which has weakened market hopes,” Bishop said.