At the September MPC meeting, the SARB kept the repo rate unchanged at 5%. Emphasis was once again placed on global growth concerns and the down-side risks that this could have on domestic growth. The SARB had also revised its real GDP growth forecasts down to 2.6% in 2012 and 3.4% in 2013.

The hype surrounding South Africa's inclusion into Citibank's WGBI on 1 October was offset by Moody's downgrade of South Africa's foreign and local sovereign bond rating by one notch to Baa1 from A3, with the outlook remaining negative at the end of September. The Moody's downgrade brings the rating in line with the other rating agencies and was widely expected, albeit at a later date.

CPI for August came in marginally higher at 5.0% year-on-year (previous 4.90%). The July retail sales number surprised to the downside and came in at 4.20% year-on-year (previous 8.30%). September vehicle sales also came in lower at 1.40% year-on-year (previous 9.40%), which is due to base effects.

Global developments continued to dominate markets in June. Fears of a Greek exit from the Eurozone dissipated after the Greek elections in mid June.

The good news for the month was that CPI for May returned within the SARB's target band of 3% to 6%. Headline CPI slowed to 5.7% y-o-y (April was 6.1% y-o-y). This moderation in inflation is encouraging and is expected to continue, with further decreases in fuel prices.

Vehicle sales figure for June was 15.6% y-o-y. This was down from May's 20.7% y-o-y, but still encouraging. On the other hand, retail sales released during the month for April showed a slow done to 1% y-o-y (previous 6.8%).

The moderation in inflation, coupled with growth concerns, has fuelled speculation of the SA Reserve Bank cutting interest rates. The FRA curve has also priced this in.

Our view is still for the SARB to keep rates unchanged for the remainder of the year, ceteris paribus.

During 2011 the repo rate was left unchanged at 5.5% despite inflation rising from 3.5% to above 6%.

Real growth in the economy disappointed over 2011 as production in the primary sector, especially mining, contracted sharply. In contrast real retail sales have grown by a healthy 7%. Household and government consumption will be the main contributors to economic growth in 2012. Exports may disappoint as the European economy will suffer as a result of the debt crisis.

In November CPI rose by 0.3% taking the annual rate to 6.1% year-on-year. The increase in food and fuel prices were the biggest drivers of higher inflation.

Inflation linked bonds and preference shares delivered strong returns over December. Vanilla bonds also outperformed cash.