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Money Market FundsThis week, the SARB has to decide on interest rates. It is a close call. Prior to the resumption of the war with Iran, traders appeared fairly comfortable with the idea that the SARB would hold off on this meeting and would rather tighten further once the scale of the impact was better understood.
That appeared to be a prudent approach and would be easily justified, especially given the Fed’s decision to keep rates on hold. However, things have changed, and the SARB now faces the prospect of a more intense inflation environment resurfacing.
With oil prices trading significantly higher and the ZAR having depreciated, the prospect of a more prolonged bout of inflation now needs to be considered a challenge that must be addressed. The SARB could justify raising the spread between its repo rate and the Fed funds rate as a means of buying insurance against inflationary pressures.
