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Money Market FundsGlobal markets entered the week with some relief as signs emerged that tensions in the Middle East may be stabilising. According to TreasuryONE’s latest market update, negotiations between Iran and the United States appear to be progressing slowly, with the Strait of Hormuz remaining the central issue. While nuclear discussions remain a sticking point, the fact that both sides are still engaging has helped reduce geopolitical risk premiums, reflected in lower oil prices and more stable market sentiment.
In South Africa, however, inflation pressures remain elevated. CPI came in at 4%, reflecting, in part, the earlier impact of higher oil prices and the disruption linked to the Strait of Hormuz. TreasuryONE expects this to be a key consideration at the South African Reserve Bank’s upcoming Monetary Policy Committee meeting. While some easing in oil prices offers hope that inflation may stabilise, broader cost pressures remain, including upcoming administrative price increases and persistent risks to food inflation.
TreasuryONE’s André Cilliers said there is a strong possibility that the Reserve Bank will choose to reinforce its credibility with rating agencies and respond pre-emptively. His view is that there is a 75% chance of a 25 basis point rate hike this week. At the same time, he remains more constructive on the Middle East outlook over the next month, suggesting that if shipping normalises and oil prices continue to soften, the market’s expectation of several further hikes may prove too aggressive.
For the Rand, the core range remains intact. The currency has strengthened toward the stronger end of the R16.25 to R16.75 band as markets have grown more optimistic that an agreement in the Middle East may be nearing. TreasuryONE maintains that the lower end of the range would likely come into play if a formal deal is reached and shipping moves more freely through the Strait of Hormuz, while renewed conflict would quickly push the rand back toward the weaker side of the range.