At its March 2023 meeting, the SARB Monetary Policy Committee (MPC) decided to hike the repo rate by 50bps, more than the forecasted consensus of 25bps. The MPC has hiked interest rates at each of the nine meetings since November 2021, bringing rates to 7.75%, the highest since April 2009.

Naturally, we are now mulling over whether we are moving into a period of higher-for-longer interest rates.

Why a 50bps increase?

1. Stubbornly high inflation. Excessive price increases of food and non-alcoholic beverages mean it could take longer for inflation to approach the target range at which the MPC prefers to anchor expectations.

2. A weaker rand. Higher state-owned enterprise financing needs will put pressure on financingconditions for rand-denominated bonds.

“They would not explicitly communicate but it does seem that the SARB are attempting to shore up the currency“. – Prescient

3. Load shedding. Sadly, the risks to the inflation outlook remain to the upside due to rising input costs – NERSA granted Eskom the approval to implement a 19% average electricity tariff hike.

“High and sticky inflation, and inflation expectations mean that we think the SARB still has more work to do in ensuring inflation comes back sustainably towards its preferred 4.5% midpoint target.” – BNP Paribas SA

What do our managers in the DFM solutions say? Use your opportunities

“The recent rate hike has in-fact been of benefit to our portfolio. Remaining nimble and alert to the ever-changing dynamics in the fixed income markets is a critical aspect of delivering consistent inflation beating returns.” – Granate Asset Management

“Given the flattening of the yield curve, we have used the opportunity to buy into some shorter-dated instruments where the yield is very attractive. Notably, we bought some 1-year NCDs at around 9% yield. The current gross yield on Strategic Income (as at 31/12 2023) is now just above 10%.“ – Coronation Fund Managers

“The reiteration of a strong stance on inflation targeting from the MPC continues to make longer-dated South African government bond yields look highly attractive at yields in excess of 11%.“ – Ninety One

We are close to the end of the rate hiking cycle and inflation is expected to come down during the latter part of this year, which is believed to be a strong environment for local fixed income assets – a big positive.

The underlying managers in the INN8 Invest range invest across asset classes, including an allocation to fixed income assets. Moneymarket assets now offer a real yield, and, given the yield underpin, the managers expect good returns presented by all yield-enhancing assets for the remainder of the year.