How Trump’s re-election might affect SA interest rates

Trump could encourage the US Federal Reserve to lower interest rates further, with rates possibly falling to 3.5% by next year.

Nov 11, 2024 - 03:00

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How Trump’s re-election might affect SA interest rates

Donald Trump’s re-election as US President brings renewed attention to his influence on US economic policies, especially interest rates. Given Trump’s past approach, financial experts expect that his administration might force the US Federal Reserve to lower rates, which could affect markets worldwide, including in South Africa.

TRUMP’S INFLUENCE ON US INTEREST RATE CUTS

Rashaad Tayob, a macro strategist at Foord Investment, explains that Trump could encourage the US Federal Reserve to lower interest rates further, with rates possibly falling to 3.5% by next year.

Tayob suggests that these potential cuts would make borrowing cheaper in the US and might encourage higher spending and investment. However, Tayob warns, these changes also have broader consequences for international markets.

He explained that when the US, the world’s largest economy, adjusts its interest rates, other countries can feel the effects. “South Africa, a country closely connected to global markets, would likely experience ripple effects from any US rate changes,” he said.

WHAT TRUMP’S POLICIES MEAN FOR SOUTH AFRICANS

Here’s how a potential US rate cut under Trump could impact South African finances:

Investment Impact: If US interest rates fall, global investors may seek higher returns elsewhere, which could make South Africa a more attractive investment destination. This might lead to an increase in capital inflows, which could strengthen the rand and potentially boost stock market prices.
Borrowing Costs: A decrease in US rates might also influence the South African Reserve Bank (SARB) to consider adjusting its rates. A stronger rand, driven by international capital inflows, could help reduce inflation, making imports less expensive. However, this could also make it more challenging for South African exporters, who rely on a weaker rand to stay competitive.

RISK AND UNCERTAINTY FOR SOUTH AFRICA’S ECONOMY

While a lower US interest rate could make South Africa more attractive to foreign investors, too many cuts could bring global economic uncertainty, which may affect markets negatively. If investors become cautious, this could potentially slow down investment growth in South Africa.

HOW WILL THIS AFFECT YOUR WALLET?

Trump’s re-election and the likely shift in US interest rates may affect both borrowing costs and investment returns in South Africa. How significant these changes will be depends on how quickly and significantly US rates are cut, and how SARB responds.