After numerous calls from all corners of SA, SARB finally gave in and cut rates by 0.25%. It’s small. But at least it will provide some relief. It should also give the economy a small boost. Ultimately, I think SARB could’ve cut rates even more. But there are reasons for SARB’s cautious approach…
Balancing investment, inflation and rand stability…
It’s primarily out of concern that cutting rates too soon could deter foreign investment – a vital source of capital for South Africa, as well as keeping inflation stable. As I said in May’s issue of Red Hot Penny Shares,
“Foreign investors are attracted to South Africa’s high real yields – the difference between nominal interest rates and inflation. With interest rates currently at 8.25% and inflation at 2.7%, SA offers a real yield of over 5%. That’s one of the highest among emerging markets.
But these high yields come with risk – both political and economic. If SARB cuts rates, the real yield drops, reducing the incentive for foreign investors to hold South African bonds. That could lead to capital outflows, a weaker rand, and ultimately, imported inflation.
SARB’s mandate is clear: protect the rand and maintain price stability. And a stable rand helps keep inflation – and future rate hikes – in check”.
But while SARB’s caution isn’t unjustified, the fact is real rates are too high – and unsustainable. Check this chart by Cartesian Capital below. It came out before SARB cut rates. Nevertheless, it still shows the huge gap between interest rates and inflation.
Sure, high real rates have supported bond inflows and the rand. Yes, it’s great for savers and bondholders.
However, it’s strangled the real economy and put pressure on entrepreneurs, small businesses and consumers.
At this point, SA needs to use every tool in the box to drive economic growth, or we risk falling even further behind. The good news is inflation is steady at 2.8% – far below SARB’s preferred number of 4%-6%. So, SARB has plenty of room to cut rates further.
In the meantime, this cut is good news for stocks – especially small caps who benefit big time from lower rates. And there’s some REAL value in SA’s small cap space right now!
#2: New-vehicle sales achieved eighth successive year-on-year growth!
Figures released by NAAMSA showed new cars and commercial vehicles sales increased 22% year-over-year to 45,308 in May.
While that’s amazing growth, there is a caveat…
May 2024 was a national election month. Political and economic uncertainty was at a peak. New vehicles sales this month fell 14.2%.
So essentially, May 2025’s year-on-year improvement, came from a low base.
Nevertheless, the latest rate cut, combined with a stronger rand and lower inflation won’t only benefit cash-strapped consumers, but also encourage investments in SA’s motor industry – which is a key driver of economic growth.
As I’ve previous mentioned in MoneyMorning, growth in new vehicle sales signal if an economy is recovering and how businesses are doing. If people are positive about their jobs, earning enough money and they have cash to spare – they buy new cars.
And increased car sales also mean there’s more manufacturing activity – as car manufacturers and parts manufacturers are kept busy with new work. So, car sales firstly show us what is happening to consumers, businesses, and tourism. But they also reveal which industries could see increased growth, or contraction.
Simply put – growth in new vehicles (no matter how big) is something to celebrate. SA’s economy needs any wins it can take, after all.
#3: It’s raining money in the AI sector
The numbers are in…
And once again, the “King of AI” – Nvidia – crushed its earnings report driven by data centre demand for its chips.
Revenue jumped 69% year-over-year to $44.06 billion beating analyst’s expected total revenue of $43.25 billion. Meanwhile, EPS of 0.81 per share beat analysts’ expectations of $0.75.
Growth would’ve been higher, but Nvidia lost $4.5 billion in sales in the first quarter due to export controls on its H20 products. It expects an $8 billion loss in H20 revenue in the second quarter.
Still, NVIDIA’s outlook remained ultra-bullish,
“Global demand for NVIDIA’s AI infrastructure is incredibly strong … Countries around the world are recognizing AI as essential infrastructure – just like electricity and the internet – and NVIDIA stands at the centre of this profound transformation.”
So, despite exports, Nvidia’s solid quarter is a thunderous reminder that demand for AI chips isn’t slowing.
What I found even more fascinating is according to Wedbush:
For every $1 spent on Nvidia chips…
$8 to $10 flows downstream into data centres, cloud infrastructure, software, services, and deployment.
So, with Nvidia estimating second quarter revenues of $45 billion, then we’re talking about a downstream effect of $360 billion to $450 billion. That’s an entire economy built on the back of Nvidia’s cutting-edge tech.
For perspective, South Africa’s GDP was valued at $382 billion at the end of 2024. So, AI is certainly no fad. Rather, a multi-year economic and technological shift driven by a tidal wave of demand.
The world’s largest and most advanced chipmaker, Taiwan Semiconductors (TSMC), thinks so too.
The company recently announced plans to build a massive AI chip foundry in the UAE. This comes hot off the heels of “Big Oil’s” (UAE and Saudi Arabia) pledge to turn their countries into global AI powerhouses.
Simply put – the AI boom is real. It’s durable. And it’s just beginning. If you’re interested in getting invested in AI companies and the beneficiaries of AI, then make sure you’re subscribed to South African Investor.
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