The repo rate was cut by 50 basis points at the September MPC meeting, this cut was in line with market expectations. This brings the total rate cuts to 600 basis points. At 9.5%, prime is at the lowest level in South Africa since January 1981. By lowering rates again, the Governor highlighted that inflation has surprised to the down side and that growth in South Africa had slowed.

The market is pricing in rates to remain sideways for the next year, hence the money market curve is currently flat from the 3 months to the 1 year area. With the yield curve being so flat and the expectation that the next interest rate move will be to the upside, floating rate notes are offering the best value and the duration of the funds will be kept on benchmark.

Fund review
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 201 0, with a possibility of rates increasing in the first quarter of 2011 (you speak about the end of 2010 in the other commentaries). 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.