Traders have reduced their expectations for interest rate cuts in South Africa this year, with forward rate agreements (FRAs) now pricing in only a single 25bp reduction. This shift reflects global influences, particularly the Federal Reserve’s cautious stance on rate adjustments and uncertainties arising from US President-elect Trump’s tariff proposals. SARB Governor Lesetja Kganyago has been emphasising a prudent approach to monetary policy, cautioning against moves that could later prove regrettable.

With this in mind, the spotlight will be on US CPI data for December today, which will provide fresh insights into US inflationary dynamics and help shape expectations around Fed monetary policy amid speculation of a pause in rate cuts later this month. Recent FOMC communications indicate concerns over a stalled disinflation process, a view that will likely be reinforced by the December CPI data today. Bloomberg’s median forecast suggests headline inflation rose to 2.9% y/y in December, up from 2.7% in November — the highest since June 2024 — and further diverging from the Fed’s 2% target. Core inflation likely remained stable, with rising costs in some sectors offsetting easing housing rents. On the whole, the print is unlikely to lead to lower US Treasury yields, keeping pressure on relatively higher-risk assets.