SA Fixed Income

OIM Global Review – June 2025

Locally, two key events took place in May, i.e. the National Treasury’s Budget 3.0 and the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) rate decision.

The South African Reserve Bank’s Monetary Policy Committee reduced the repo rate by 25bps at its May meeting, signalling a more dovish outlook compared to earlier decisions. The vote was not unanimous, however, with five members favouring a 25bps cut and one member advocating a 50bps reduction. The rate cut reflects reduced inflationary risks, supported by declining oil prices, lower global and domestic uncertainties, and a relatively stronger Rand. The SARB also trimmed its growth forecasts and reduced its inflation projections implicitly announcing its preference for a lower inflation target.

Headline CPI inflation edged up to 2.8% year-on-year in April (vs. 2.7% in March), slightly above consensus. The main driver was a sharp rise in food and non-alcoholic beverages inflation (4.0% year-on-year, up from 2.7%). Fuel prices fell by 72c/litre, contributing -0.1% month-on-month to CPI and keeping overall inflation moderate. Year-to-date, fuel prices are down approximately R1.00/litre.

The FTSE/JSE All Bond Index (ALBI) delivered a total return of 2.70%, with the longer end of the curve contributing most of the gains. The FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) recorded returns of 0.40% and 0.45%, respectively for the month. The Alexander Forbes Short-Term Fixed Interest (STeFI) index returned 0.61% for the month.

The Rand strengthened against the US dollar in May, with gains primarily driven by broad US dollar weakness related to tariff uncertainty. Additional support came from market expectations of a potential lower domestic inflation target. Despite the recovery, the Rand remains exposed to volatility across emerging market currencies and ended the month at 18.00/USD.

Looking ahead, we see local economic fundamentals supporting lower yields over the medium term. Domestic growth remains muted, while inflation is relatively benign in the short term. Monetary policy is expected to remain accommodative in the near term, providing scope for further downward momentum in yields. The global interest rate environment is less supportive, however, given ongoing uncertainty around potential tariff increases and the policy stance central banks may adopt. We continue to adopt a holistic investment approach, grounded in macroeconomic fundamentals and responsive to shifting policy signals.