Market review

During the quarter, the Monetary Policy Committee (MPC) decided to cut the repo rate by 50 basis points from 6.50% to 6.00% on 9 September. The market however expected the rate cut on the back of weak economic data and global growth concerns. Inflation remained within the Reserve Bank's target range during the quarter. Risks to inflation are still evenly balanced and inflation is expected to remain within the target range for an extended period.

The money market curve flattened during the quarter, with the three-month money market rate declining from 6.62% to 6.03%, while the 12-month rate fell from 7.26% to 6.42%. Treasury bills in the 91 days area of the curve traded above the bank rates, and credit spreads on short term corporate credit decreased during the quarter.

What SIM did

Assets were invested in all maturities across the money market yield curve during the quarter. Treasury bills were added to the portfolios, as well as quality corporate credit, which traded above the three-month money market rates. We included floating rate notes in the portfolio to enhance portfolio returns.

SIM strategy

Our preferred investments would be floating rate notes and quality corporate credit to enhance returns within the portfolios. We will continue to include 91-day treasury bills in the portfolio for as long as they offer good value above the three-month money market rate. We expect the repo rate to remain unchanged at the next MPC meeting.

Market review
During the quarter, the Monetary Policy Committee (MPC) kept the repo rate unchanged. However, there is a small possibility the Bank may cut the interest rate at one of the upcoming MPC meetings in response to weak economic data and global growth concerns. Inflation remained within the Reserve Bank's target range during the quarter. Risks to inflation remain evenly balanced and headline inflation is expected to remain within the target range for an extended period. The money market curve flattened during the quarter, with three month money market rates declining from 6.67% to 6.62%, while 12-month rates fell from 7.48% to 7.26%. Treasury bills maturing in 91 days traded above the bank rates, and credit spreads on short-term corporate credit decreased during the quarter.

What SIM did
We invested in all maturities across the money market yield curve. Treasury bills were added to the portfolios, as well as quality corporate credit, which traded above the three-month money market rates. Floating rate notes were included in the portfolio to enhance portfolio returns.

SIM strategy
We prefer floating rate notes and quality corporate credit because these would enhance returns in the portfolio. We will continue to include 91-day treasury bills in the portfolio as long as they offer good value by trading above the three-month money market rates. We expect the repo rate to remain unchanged at the next MPC meeting.

Market Review

During the quarter, the Monetary Policy Committee (MPC) decided to lower the repo rate from 7.00% to 6.50% - its lowest level in at least 12 years. The decision was taken against a backdrop where subdued economic growth posed little threat to an improved inflation outlook. In particular, the rand's appreciation against the dollar and thus reduced import costs helped bring inflation down to within the 3% to 6% target range earlier than expected.

Risks to the inflation outlook remain fairly evenly balanced and, given the current monetary policy stance, inflation is expected to continue moderating.

The money market curve remained steep over the period, with three-month money market rates declining from 7.23% to 6.69%, while the 12 month rate fell from 8.20% to 7.48%.

What SIM did

SIM remained neutral to bullish on the outlook for short-term interest rates and invested in all money market maturities between six months and 12 months. Floating rate notes were included in the portfolios to enhance portfolio returns.

SIM strategy

Looking forward, we expect no major changes to the curve in the next quarter. Our preferred investments would be floating rate notes and quality corporate credit to enhance yields in the portfolio. We expect the repo rate to remain unchanged at the next MPC meeting.

Market Review
At its last meeting for the year on November 17, the SA Reserve Bank Monetary Policy Committee(MPC) - with new Governor Gill Marcus - kept its benchmark interest rate unchanged at 7%. Also noteworthy was an agreement to discuss broadening the central bank's mandate. MPC meetings will be held every second month in 2010, rather than once a month as occurred during the credit crisis. The first meeting of the year is scheduled for January 26, 2010. Risks to the inflation outlook remain fairly evenly balanced and, given the current monetary policy stance, inflation is expected to continuing moderating. The money market curve steepened marginally over the period, with three month money market rates rising from 7.01% to 7.23%, while the 12- month rate increased from 8.16% to 8.23%.

SIM Strategy
SIM remained neutral in its outlook for short-term interest rates during the quarter and invested in money market instruments with maturities of between three and six months. Floating rate notes were included in the portfolios to enhance returns. Looking forward, a 12-month rate above 8.3% is attractive. We expect no major changes on the curve during the first quarter of 2010. Preferred areas of investment are between three and six months. We are considering including floating rate notes that reset at three-month Jibar, which were recently trading at a spread of 80bps. We will also explore investing in corporate credit trading at Jibar plus a spread to enhance the returns of money market portfolios. We expect the Repo to remain unchanged at the next MPC meeting.