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January was characterised by improving inflation dynamics and supportive bond
market conditions in South Africa. The South African Reserve Bank kept interest
rates unchanged at its January meeting, although the decision was more finely
balanced than before, with two MPC members voting for a cut. Inflation data
released ahead of the meeting showed further progress, with core inflation easing to
3.3% year-on-year, only marginally above the SARB’s newly emphasised 3% target.
The rand strengthened during the month, briefly trading below R16 to the US dollar
for the first time in nearly four years, before closing January at R16.15, benefiting
from broad US dollar weakness.
Despite mixed global yield movements, South African government bonds performed
well, with the 10-year yield falling to 8.05% - its lowest level in almost a decade -
highlighting growing confidence in the domestic inflation outlook and providing a
supportive backdrop for fixed income investors.
