The Reserve Bank's Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points to 6.75% for the first time in five years at its July policy meeting, due to rising growth concerns and easing inflation forecasts. However, the Reserve Bank disappointed markets at its September meeting when they decided to keep the repo rate on hold, defying market expectations for a further 25 basis point rate cut. Governor Lesetja Kganyago cited heightened uncertainties in the economy as reason to keep the repo rate on hold. The prospect of further sovereign credit-ratings downgrades; upside risk to inflation from a potential 20% electricity tariff hike; looming US interest rates hikes, which would put upward pressure on the Rand; as well as the rise in crude oil prices, all of which will put upward pressure on the inflation trajectory. The Reserve Bank revised its inflation forecast marginally higher to 5.00% in 2018 from 4.90%, while 2017 forecast was left unchanged at 5.30%.

Local politics and a newfound strength in the US Dollar continued to plaque the Rand which was under significant pressure in September. A hawkish Federal Open Market Committee (FOMC) and the announcement of the start of the US balance sheet reduction caused the Dollar to strengthen. The Rand thus weakened against the US Dollar and other major currencies. The Rand ended the quarter at 13.55 against the US Dollar.

The forward rate agreement (FRA) curve moved higher after the MPC's decision to keep rates on hold, thus shifting expectations from a 100% probability of a 25 basis points cut in November to a 50% probability.

Consequently, the money market yield curve steepened toward the end of September, with the 1 year NCD rate trading higher at 7.70% from a previous low of 7.50%.

Bond yields fell sharply on the back of the rate cut in July, and the curve steepened further driven by the rise in US -10 year treasury yield. The yield on the R186 bond traded a low 8.38% and ended the quarter at 8.55%.

The weighted average duration on the Fund continues to be kept relatively close to the maximum permitted weighted average duration.