Fund review

The fund remained overweight in floating rate notes for the quarter, with a duration of one year and modified duration of 43 days. The fund increased in size during the quarter to R5.01 billion from R4.59 billion previously.

Market overview

For the quarter under review, the South African Reserve Bank’s (SARB) MPC committee left the repo rate unchanged at 6.50%. The votes to keep the repo rate unchanged were unanimous. Inflation has remained around the mid-point of the inflation target, printing 4.3% year-on-year in August. Inflation expectations have moderated. However, the downside risks to growth remain and, in most sectors, are a serious concern. Growth in world trade volumes continues to decline due to trade wars between the US and China. There are risks of oil price shocks which will filter through to the fuel price in SA. The reasons detailed for keeping the repo rate unchanged were rand depreciation of 4.6% to the US dollar and a persistently uncertain environment. The SARB governor highlighted that the current challenges facing the SA economy are mostly structural and cannot be resolved by monetary policy alone. Structural reforms that raise growth and lower the cost structure of the economy remain urgent.

Looking ahead

The SARB adopted a wait-and-see stance as there are still concerns about Eskom’s restructuring, the Medium-Term Budget Statement (MTBS) which has been delayed by a week and Moody’s impending credit rating decision on SA, scheduled for 1 November. Depending on the Eskom restructuring model announced, a constructive MTBS and no downgrade from Moody’s, a further interest rate cut of 25 basis points is a possibility at the next MPC committee meeting, which is from 19 to 21 November.