The South African Reserve Bank’s (SARB's) Monetary Policy Committee (MPC) increased the repo rate by 25 basis points to 3.75% at its meeting in November, in line with market expectations. The Governor stressed that the rate hiking cycle should be gradual. The SARB’s inflation forecast was raised to 4.50% for 2021 from 4.40%.

The 2022 and 2023 forecasts were also adjusted upwards to 4.30% and 4.60% respectively. It reiterated that the weaker rand may feed through to higher inflation. The SARB kept their 2022 and 2023 estimated GDP growth at 1.70% and 1.80% respectively from the previous meeting. GDP growth for 2024 was estimated at 2.00%. Risks to the economy such as weaker commodity prices, the coronavirus, stagnant investment and social unrest were pointed out once again. South African bond yields also rose over the quarter. The yield on the 10-year government bond (R2030) increased by 11 basis points to 9.335%, while the yield on the R186 bond rose by 23 basis points to 7.835%

The rand remained vulnerable during the quarter and depreciated against the US dollar to R15.93 at the end of the quarter. Brent crude oil prices remained high and was at US$77 per barrel. The Money Market yield curve continued to steepen as the Forward Rate Agreement (FRA) curve continued to steepen after the MPC meeting. The 12-month NCD rate rose from 4.850% to 5.325% during the past quarter, while the three-month Jibar adjusted 20bps higher to 3.883% from 3.675%.

The All Bond Index recorded a total return of 8.40% for the year, while cash produced a return of 3.81%. More than 60% of the Absa Prudential Money Market Fund is invested in floating rate notes, and is therefore well positioned for an upward move in the interest rate cycle