Our weekly podcast by Kevin Lings

SARB makes cautious 25 bps rate cut but next US rate cut is uncertain

In this podcast, STANLIB’s Chief Economist, Kevin Lings, considers the factors that are restraining SA’s inflation rate and have influenced the Reserve Bank in cutting the benchmark interest rate by 25 bps at its latest meeting. He also analyses latest US jobs data, which showed an increase in unemployment to 4.4% from 4.3%, and changing expectations about the next US Federal interest rate cut.

The focus areas during the week included

• The S&P 500 Index declined by a substantial 1.9% and it has fallen by 4.2% since reaching a record high on 28 October 2025. A 1% rebound in a volatile day of trading on Friday (which was supported by comments from New York Fed President Williams) helped to ease the week’s losses. The recent sell-off appears to have been driven by worries about elevated equity valuations and concerns about whether the implementation of artificial intelligence (AI) will generate enough profits to justify the massive spending that companies have poured into developing the technology. Historically, 5% pullbacks tend to occur about three times a year. The latest pullback is the first meaningful sell-off in 146 trading days.

• Another source of pressure for global markets was the recalibration in expectations of a December interest rate cut by the US Federal Reserve (Fed). The Federal Open Market Committee (FOMC) minutes showed that the decision to cut rates in October was controversial, with officials expressing divergent views. However, on Friday morning New York Fed President Williams suggested another rate cut this year remains a possibility, helping to push the probability of a rate reduction back up to 70%.

• The STOXX Europe 600 Index ended the week 2.2% lower, hurt by renewed worries about inflated AI equity valuations. Japan’s stock markets also lost ground, with the Nikkei 225 Index falling by 3.5% and the broader TOPIX Index down 1.9%. Sharp declines in the shares of Japanese AI-related technology companies led Japanese equity markets lower. Unsurprisingly, SA’s All-Share Index fell by 2.1%, with weakness reflected in all the major sub-indices.

• The US bond market generated positive returns. The yield on the 10-year government bond declined from 4.13% to 4.06%, while the two-year bond yield fell slightly from 3.6% to 3.51%. The improved bond market performance was helped by Friday’s jump in market expectations of a December interest rate cut.

• The rand went from being one of the best-performing emerging market currencies on Thursday to the worst-performing on Friday. The emerging market currency index lost 0.5% against the US dollar (which was mostly explained by the dollar gaining against the euro), while the rand depreciated by 1.7%. It is difficult to establish the exact cause of the rand’s recent weakness but it could partly reflect the decision by the South African Reserve Bank (SARB) to cut the repo rate by 25 bps to 6.75% on Thursday. The negative attention from President Trump over SA hosting the G20 in Johannesburg could also have had a negative impact. Year-to-date, the rand’s performance is almost exactly in line with the performance of the emerging market currency index, gaining 7.6% against the US dollar.

• The SARB decided to cut the repo rate (repurchase rate) by 25 bps to 6.75% at its Monetary Policy Committee (MPC) meeting on Thursday. The decision was unanimous and in line with market expectations. Since August 2024, the Reserve Bank has cut interest rates by a total of 150 bps, taking the repo rate down to its lowest level since October 2022. In its decision to cut rates, the MPC highlighted that SA’s inflation rate has surprised on the downside compared to forecast, despite the annual rate of change in headline inflation showing a modest upward bias in recent months. The MPC said the increase in inflation was mainly due to non-core items, including meat, vegetables, and fuel. Core inflation was measured at 3.1% in September 2025, below market expectations. The SARB continues to see this upward trend in headline inflation as temporary. Importantly, it still expects inflation will be in line with the new target of 3% in 2027.

• The SARB revised its GDP growth rate for 2025 higher, although modestly, from 1.2% to 1.3%. It highlighted that employment is rising and household spending has been relatively strong, supported by wealth effects, further withdrawals from two-pot pension savings, and lower inflation and interest rates. At the same time, investment has disappointed, contracting further in the first half of the year.

• In October 2025, SA’s headline CPI inflation increased by a modest 0.1% month-on-month, which was below market expectations for an increase of 0.2%. Despite the subdued monthly increase, the annual rate of inflation rose from 3.4% to 3.6%. Although the annual rate of inflation has drifted higher in recent months, the monthly rate of change has tended to surprise to the downside. The monthly increase of 0.1% reflected only a change in the residual balance, which highlights that there were no large price increases in any of the major categories. This includes food inflation. In October, food prices declined by 0.1%, which pulled the annual rate of food inflation down to 3.9% from 4.4% in September. As recently as July, food inflation was 5.5%, driven by a sharp increase in meat prices due to an earlier outbreak of foot and mouth disease. From October 2024 to October 2025, the headline inflation rate averaged a respectable 3.1% – effectively the SARB has achieved a 3% inflation outcome over the past year. It is, however, important to recognise that over the past 12 months inflation has benefited from a convergence of numerous positive factors, not all of which are likely to persist for the next 12 months. These include: a year-on-year decline in the fuel price (over the past 14 months SA’s annual inflation rate for petrol has averaged -7.7%); a reasonably strong currency (year-to-date the rand has gained 10% against the dollar); China continuing to export deflation; and a weak housing market, which has kept rental inflation around 3%. We expect inflation will move back above 4% over the next 12 months, as some of these factors will become less supportive. This is still a good outcome when measured against the midpoint of the inflation target and it is a compelling outcome in comparison to the Reserve Bank’s new inflation target of 3%.

• South African retail spending was unchanged in September after declining by a revised 1.6% m/m in August 2025. Over the past year, sales have risen by 3.1% y/y (real). This is up from growth of 2.2% in August, but significantly down from 5.7% in July. The growth in retail spending appears to have lost some momentum over the past two months (August and September), but the performance over the preceding ten months (from October 2024 to July 2025) was relatively robust. It averaged a monthly increase of 0.5% (real) and an average annual increase of a remarkable 4.9% (real). The outperformance over that ten-month period appears to reflect a combination of factors, including the benefit of subdued inflation (hence stronger growth in real disposable income), relatively robust growth in credit card debt, which recorded an average monthly increase of 0.7% from October 2024 to June 2025 but is now softening, and significant “two-pot” withdrawals, amounting to over R75 billion (before tax) since inception. Although inflation remains relatively subdued at 3.6%, there has recently been some moderation in the use of credit card debt, while the extent of two-pot withdrawals is probably fading, given the surge in withdrawals previously and the fact that ongoing withdrawals are limited to the savings portion of monthly contributions.

• On Thursday morning, the September US labour market report was released, after being delayed by nearly a month due to the US government shutdown. Although total jobs added exceeded forecasts, at 119 000 versus expectations of 51 000, the previous two months’ employment data was revised down by 33 000, which pushed the August employment estimate from an initial gain of 22 000 jobs to a loss of 4 000 jobs. The unemployment rate increased from 4.3% to 4.4%, which is almost a four-year high. Overall, the jobs report reinforces the narrative that the US labour market is softening. Factors supporting this argument include the upward trend in the rate of unemployment (which is very close to the key 4.5% level), the downward revision to prior months’ job gains, the larger-than-expected increase in wages, and the fact that job gains in September (119 000) were relatively narrow and mostly concentrated in non-cyclical sectors such as healthcare. This may indicate that the FOMC meeting on 10 December will be concerned about a softening of the labour market. Consequently, the outcome remains a close call.

• Following the release of the US labour market report for September, Mohamed El-Erian made the following comment on X: “here are the two major takeaways from this morning’s BLS release of the much-delayed US September jobs report: First, the numbers are fundamentally “stale” and, as such, offer little actionable insight. Second, even setting aside that critical qualification, the report fails to clarify the labor market’s status enough to resolve the deep policy divisions within the Federal Reserve”.

• The minutes of the US FOMC meeting held 29 October indicated considerable scepticism about the need for an additional interest rate cut in December. However, comments on Friday morning by John Williams, the president of the New York Fed, seemed to support a near-term rate cut. According to CME data, on Friday there was a 70% chance that the Fed would cut rates at its next meeting on 10 December. This is up from 44% a week earlier and 30% on Wednesday.

• The New York Fed’s Empire State manufacturing index unexpectedly surged in November 2025 to 18.7 points from 10.7 in October and -8.7 in September. The market expected a slowdown to 5.8. The underlying details were strong, with the new orders, shipments and employment components of the index all improving. Both current and expected price pressures eased. Although expected business conditions declined, the index remained above the recent average.

• The Eurozone purchasing managers’ indexes (PMIs) compiled by S&P Global indicated that business activity grew at a solid pace in November. The HCOB Eurozone composite PMI index, which encompasses services and manufacturing, slipped slightly to 52.4 from 52.5 in October, but this was above the consensus estimate of 52.1. The services PMI rose slightly to an 18-month high of 53.1. However, the gauge for manufacturing activity fell to 49.7 from 50.

• Consumer inflation in Japan was 3% y/y in October, well above the Bank of Japan’s (BoJ’s) 2% target, while core consumer inflation increased to 3% y/y from 2.9% in September. In a separate report, Japan’s GDP contracted by 1.8% q/q (annualised) in Q3 2025, which was less than market expectations for a decline of 2.4% q/q. This compares with revised growth of 2.3% in Q2 2025. A decline in exports (partly hurt by higher US tariffs) and lower inventories played a key role in weakening Japan’s economic performance. The Japanese government recently approved an economic stimulus package worth around $135 billion, signaling a focus on using fiscal policy to boost growth. The package comprises increased spending, tax breaks, and investment targeted at key segments of the economy, such as shipbuilding and AI.

• No official economic indicators were released in China. However, on the policy front, China’s government is, evidently, considering new measures to revive the country’s struggling property market. Some suggestions include the introduction of mortgage subsidies nationwide for first-time buyers, raising income tax rebates for mortgage borrowers, and cutting home transaction costs. Earlier it was reported that in October 2025 new home prices in China fell at the fastest pace in a year, while existing home values recorded the biggest drop in 13 months. In recent years the property market downturn has become a major growth headwind for China.

FAQs: Market Volatility and Rate Updates‍

Why did SARB cut interest rates?

SARB cut the repo rate by 25 bps to 6.75% due to subdued inflation and moderate GDP growth.

How did US jobs data affect markets?

Rising unemployment and slower job gains created uncertainty about the next Fed rate cut.

Why are markets worried about AI?

Concerns over high AI spending and whether it will generate sufficient profits led to equity sell-offs.

How did the rand perform recently?

The rand depreciated 1.7% against the US dollar, influenced by SARB’s rate cut and other global factors.

What is the current outlook for global equities?

Global markets remain volatile, with declines in the US, Europe, Japan, and South Africa due to AI concerns and rate uncertainty.