Ahead of what is expected to be a relatively quiet start to the new week, with very little market-moving data scheduled for release today, it is worth taking stock of the significance of last week’s central bank action. The US Federal Reserve’s rate cut, in particular, signalled a shift in focus from high inflation to rising risks to economic growth. With the Fed cutting rates, the door also opened for central banks of higher-risk economies to ease monetary policy. Accordingly, the SARB also cut rates last week, followed by fresh monetary easing in China this morning. Specifically, Chinese economic authorities cut the 14-day reverse repurchase rate by 10bps and scheduled a press conference for tomorrow on financial support for economic developments. This has fuelled speculation that China is preparing to ramp up efforts to support its ailing economic recovery, which is supporting sentiment more broadly.
Improved market sentiment and risk appetite will reignite a search for yield through the coming quarters, and South Africa is well placed to capitalise. The formation of the Government of National Unity (GNU), some 100 days ago, has improved SA’s risk profile significantly, which should lead to increased capital flows to the country as external monetary conditions ease. Of course, for now, the improvement in SA’s risk profile is primarily optics-based, with investors patiently awaiting the implementation of much-needed structural reforms. With this in mind, the focus will gradually begin to shift to the Medium Term Budget Policy Statement (MTBPS) that should take place at the end of next month, which could potentially yield fresh insights into fiscal reform plans.