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Money Market FundsThere has been a turnaround in South African interest rate expectations since the start of the Middle East war. Pricing has shifted from expectations for additional easing from the SARB to a materially more hawkish outlook.
The chart below illustrates that FRA spreads versus 3-month JIBAR have repriced sharply higher. The broad-based nature of the move highlights how decisively sentiment has shifted, with rate hikes expected with headline inflation at 4%. That said, recent market pricing and updated rate-path indicators suggest a somewhat more measured tightening cycle. Once upward drift in JIBAR is taken into account, the roughly 26.5bp premium in the 1×4 FRA over JIBAR still points to a May rate hike. Beyond that, investors continue to lean toward an additional hike by September, although the expected tightening path has relaxed relative to the previously anticipated, more front-loaded cycle.
The repricing reflects mounting concern over South Africa’s inflation outlook, but much depends on how quickly oil prices adjust back down in the months ahead, assuming Iran and the United States reach an agreement soon.
