During the quarter, the South African Reserve Bank kept the repo rate unchanged at 12% due to an improved medium-term inflation outlook and expectations that growth would slow to below potential.

On the economic front, producer price inflation of 19.1% and consumer price inflation excluding mortgages (CPIX YoY) of 13.6% came out higher than expected. However, the trend in short-dated instruments became more positive as we are getting closer to the top of the inflation rate cycle. Three-month Jibar rates moved down from 12.37% to 12.05%, while the 12-month rate decreased from 13.85% to 12.50%.

Looking forward, the three-month forward rate is discounting a very good possibility of interest rates remaining unchanged in the near term and then starting to come down in the second half of next year, with more interest rate cuts to follow.

The next monetary policy committee (MPC) meeting decision will be on 9 October. Our expectation is for the repo rate to remain unchanged at 12%, with the prime rate at 15.50%.

During the quarter, we increased the duration on money-market portfolios by increasing our percentage holding in the one-year area to take advantage of the higher yields available, while keeping a minimum balance in the current account.

During the second quarter of 2008 the South African Reserve Bank increased the repo rate by 1% - 50 basis points in April and 50 basis points in June.

Jibar rates in the three-month area increased from 11.37% to 12.37%, while the twelve-month rate increased from 12.25% to 13.85%. The increase was mainly on the back of worse than expected outcomes on inflation, concerns about electricity supply and pricing, and the repo rate increases in April and June.

Looking forward, the three-month forward rates discount a strong possibility of another 50 basis points increase in August and then staying unchanged for the rest of the year. The next MPC meeting will take place on 14 August and our expectation is for the repo rate to be increased by 50 basis points.

During the quarter, major maturities were invested in the shorter end of the yield curve while we took advantage of the higher yield in the one-year area and kept a minimum balance in the current account.

Sanlam Money Market Fund changed its name to SIM Money Market Fund on 1 August 2008.

During the first quarter of 2008 the South African Reserve Bank decided to keep the repo rate unchanged at 11% although there were concerns about inflation and secondary effects that might come through.

The three-month Jibar rate increased from 11.25% to 11.37%, while the 12-month rate increased from 11.94% to 12.25%. The increase was mainly on the back of worse than expected outcomes on inflation, concerns about electricity supply and pricing, and the effect of the new CPI clothing and footwear survey, which boosted the annual advance in CPIX by 0.2%, as well as PPI figures that were delayed numerous times due to index changes.

Looking at the three-month forward rates the market is very much divided between a hike and no change by the SARB as some risk of an interest rate hike is priced into the market, while the long-term forwards suggest we could see some relief over the next 12 months.

During the quarter major maturities were invested in the short end of the yield curve, while a small portion was invested in the one-year space to take advantage of higher yields and a minimum balance was kept in the current account.

During the last quarter of 2007 the South African Reserve Bank decided to increase the repo rate twice. At the October MPC meeting the repo rate was increased from 10% to 10.50% and again in December to11%. Inflation still remains the main concern.

Jibar rates in the 3-month area increased from 10.30 % to 11.25% while the 12-month rate increased from 10.93% to 11.94%. This was mainly due to the increase in the repo rate. Unlike in the previous quarter the movements were more or less the same across the curve.

The 3-month forward rates imply that the repo rate is expected to remain unchanged at 11% while the long-term forwards suggest that we could see some relief over the next 12 months.

The money market spot curve though, indicates some risk of another repo rate increase. The next MPC meeting decision will be on 31st January but our expectation is that the repo rate will remain unchanged.

Major maturities were invested in the short end of the yield curve. In order to take advantage of the higher yields and at the same time keep a minimum balance in the current account, a small portion was invested in the 1-year area.