Quarter 2 2020 - Fund Manager Commentary

By Nedgroup Investments

As expected by most market commentators, the South African Reserve Bank (SARB) cut the repo rate by another 25 basis points to 3.50%, on a split MPC decision, taking the total reduction in this rate for the year to 300 basis.

This rate cut further supports the SARB's "balanced" inflation forecast over the foreseeable future, but in our view, sustainably low inflation may not be a dead certainty for perhaps as long as expected by the market, especially given the uncertainty in real economy and any effect on supply chains and other input costs such as electricity or Rand oil prices.

The market expectation is for a further 25 basis point cut this year at least, which would be welcomed by all sectors and participants (other than pensioners reliant on interest income), in such a weak economy.

Below we have added two graphs indicating the impact on our funds following the rate cut yesterday. The caveat to the below graphs would be impacted by inflows.

Nedgroup Investments Corporate Money Market Fund – 23 July 2020

Estimated decline in yield following the 25bps rate cut vs Call deposits

 

 
Nedgroup Investments Core Income Fund – 23 July 2020

Estimated decline in yield following the 25bps rate cut vs Call deposits