Fund man­ager in­sights:

Finweek English Edition - - INVESTMENT -

SO JUST HOW much of a sur­prise was the rate hike? Vic­tor Mpha­phuli, fund man­ager of the Stan­lib Bond Fund, says it came as a big sur­prise. “We knew it was com­ing, but no-one thought it was go­ing to come so soon. Eco­nomic growth is tepid, so ex­pec­ta­tions were that the South African Re­serve Bank (Sarb) would be caught in a stagfla­tion­ary bind (high in­fla­tion, low eco­nomic growth). So we just ex­pected the Re­serve Bank to sit it out.” The im­pli­ca­tion was that the bank would not act on in­ter­est rates, even if it meant see­ing in­fla­tion rise above the bank’s tar­get band for a short pe­riod.

“So for me it was about send­ing out a mes­sage. The Sarb, while be­ing mind­ful of stim­u­lat­ing growth, re­gards in­fla­tion tar­get­ing as their top pri­or­ity,” says Mpha­phuli. He thinks that the Sarb was clearly wor­ried about the cur­rency and its im­pact on in­fla­tion. “The rand de­pre­ci­ated by 7% in Jan­uary alone. Emerg­ing mar­kets’ currencies in gen­eral have been neg­a­tively af­fected by ta­per­ing.

So where to from here? And what are the im­pli­ca­tions for bond in­vestors and yields? “The mar­ket is dis­count­ing an­other 1%-1.5% in­crease, po­ten­tially even reach­ing 2%,” says Mpha­phuli. This should hap­pen grad­u­ally as op­posed to be­ing sud­den. “Most of the ex­pected bad news on the rate front is al­ready priced in. So I ex­pect one more hike this year, par­tic­u­larly if the rand re­mains at weak lev­els.”

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