The FNB House Price Index growth averaged 0.8% y/y in December, marginally higher than the 0.7% in November (revised from 0.5%), and a low of 0.5% in October.
At its January 2025 meeting, the Monetary Policy Committee (MPC) lowered the repo rate by another 25 basis points (bps), bringing it down to 7.5%. This marks the third consecutive 25bp cut since the start of the cutting cycle in September last year. While this highlights the MPC's comfort with the inflation trajectory over the medium term, the outlook on interest rates is uncertain. Tighter monetary policy in the United States (US) and upside inflation risks could limit the MPC's room to manoeuvre. The voting split showed two committee members already willing to pump the breaks on the cutting cycle and if this is anything to go by, we could have a pause sooner rather than later.
The past few years have been tumultuous and now that the probability of subsiding geopolitical tensions is rising, it is being substituted with mounting trade tensions. Unfortunately, less cooperative global trade and defence policies may raise supply-chain disruptions and fiscal consumption spending, with the result being reflationary pressure. However, prevailing fundamentals suggest that restrictive monetary policy has managed to contain inflation and that a continued interest rate cutting cycle in various parts of the globe is still supported, including in South Africa (SA).
After troughing at 2.1% y/y in May 2020, due to a lockdown-driven fall in demand and statistical imputations, headline inflation accelerated to 5.2% y/y in May of 2021. CPI weights are typically updated at least every five years, in line with international standards. New weights will be introduced with the January 2022 data and the base year will change to December 2020.
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