SA MPC commentary May 2024

Rates still on hold

On Thursday 30 May the Monetary Policy Committee (MPC) announced their latest decision on short term interest rates. Although inflation has remained within the 3% - 6% target band for eleven consecutive months, the latest CPI print of 5.2% is above the 4.5% mid-point of the band, which is the MPC’s unofficial target. Despite the high rate of inflation and the US Federal Reserve’s ongoing hold, the repo rate remains unchanged at 8.25%.

The global narrative remains that the US Federal Reserve will cut interest rates this year, though expectations have become more realistic as the year has progressed. At the start of the year, interest rate markets were overly optimistic in pricing in several Fed cuts, commencing as early as March. The market now expects one cut near the end of the year. Fed policy often informs SARB policy, and for that reason the interest rate outlook in SA has also become less optimistic around the near prospects for rate cuts. Currently, the market expects no rate cuts from the SARB this year.
T
he PPS portfolios have a healthy allocation to cash and are benefitting from the high yield environment. Within fixed interest, we prefer SA cash over SA bonds, given there is little need to take on additional risk to achieve adequate yield. PPS Enhanced Yield Fund, for example, our cash-like building block solution, currently yields 9.7% with minimal interest rate risk. With interest rates expected to remain high for the time being, investors should continue to consult with their financial advisors to ensure that their personal portfolios are well-positioned to capitalise on market yields.