The short end of the domestic money market continued to drift higher during 02Q2 in anticipation of further monetary tightening by the central bank. In the event the three-month NCD rate rose from 11.2% to 12.25% during the quarter. However, the one year area of the curve remained steady around 13%. It would appear therefore that the money market correctly anticipated the 1% hike in the repo rate that was announced during June 2002. Judging from the reaction of the money market to the rate hike, investors are not currently expecting further tightening by the SARB.

SIM expects that the rate on the three-month NCD would stabilise just above 12.0% during the latter half of 2002. Judging from the fact that the money market derivatives are mostly trading underneath the spot market, but also taking into consideration SIM's more upbeat inflation outlook for the second half of 2002, the fixed income team expects that the money market curve will continue to flatten during 02Q3. The team will therefore continue to invest mostly in the long end of the market, while keeping the durations of the portfolios close to the maximum allowed by the different mandates.