During the quarter under review the repo rate was kept unchanged. This was widely expected by the markets. Gill Marcus took over as Governor of the Reserve Bank in November and gave her first MPC speech. Her comments were around inflation, which is expected to remain favourable out to the final quarter of 2010. The single largest threat to inflation is a larger than 25% increase in Eskom tariffs. This is reflected in the FRA market, which is indicating that rates are expected to remain unchanged for the whole of 2010, with a possibility of rates increasing in the first quarter of 2011.

Due to the expectations on rates and concerns around "cost push" inflation potentially filtering through towards the end of 2010, the money market funds will be invested short of the benchmark.

During the quarter under review the repo rate was cut by 50bps in the August MPC meeting, bringing the total to 500bps since December 2008. Rates were kept on hold at the September MPC meeting giving an indication that the Reserve Bank may feel that enough has been done in terms of rate cuts. Gill Marcus takes over as Governor in November, her stance on inflation targeting is expected to be similar to that of the current Governor.

Looking ahead
The FRA market is pricing flat rates for one year, with the possibility of increasing rates thereafter. Inflation is expected to move back towards the target range during the first quarter of 2010.As mentioned in the last quarterly review, due to oost push inflation pressures filtering through, we expect inflation will move out of the target range towards late 2010.

Due to concerns on inflation pressures going forwards and the fact that rates have reached the bottom of the cycle, we will keep the funds short of the benchmark.