The respondents said that repo rate is also forecasted to trough at 6.66%.<\/p>\n\n\n\n
The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) decided last week to cut the repo rate by 25 basis points from its 15-year high of 8.25% to 8.0%.<\/p>\n\n\n\n
This was due to lower inflation figures (4.4% in August, which is below the SARB’s 4.5% target) and the US Federal Reserve cutting rates by over 50 basis points.<\/p>\n\n\n
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<\/a>Curate’s Ali Simpkin said that yields of fixed-income asset classes are declining globally, with the rate-cutting cycle now underway.<\/p>\n\n\n\n
When interest rates fall, the yields on traditional savings products and bank deposits usually decline. <\/p>\n\n\n\n
Although many then search for higher yields in riskier investments, a lower interest rate environment can allow certain asset classes, like fixed income, to thrive.<\/p>\n\n\n\n
Despite a recent yield rally, South African fixed income assets remain attractively valued.<\/p>\n\n\n\n
According to Simpkin, nominal bonds, yielding around 12.81% year to date (as of 31 August 2024), and inflation-linked bonds, yielding just over 5% over the same period, are still set to deliver solid returns over the medium term.<\/p>\n\n\n\n
The value of existing bonds can increase when rates fall, as their higher fixed yields become more attractive compared to newly issued bonds with lower yields.<\/p>\n\n\n\n
This creates a more favourable environment for fixed income investments, allowing them to perform well even as broader market conditions shift. <\/p>\n\n\n\n
There is also a global hunt for yield when rates are cut in developed markets.<\/p>\n\n\n\n
When central banks in major economies cut interest rates, investors often turn to emerging markets, which offer higher yields due to higher risk premiums.<\/p>\n\n\n\n
This can be good news for South Africa, as the shift leads to increased investment as global investors look to benefit from the higher returns relative to other government debt.<\/p>\n\n\n\n
South African asset classes, which offer significantly higher yields after adjusting for inflation, could thus become far more attractive to investors.<\/p>\n\n\n\n
Nevertheless, cash is still an essential tool within any portfolio as it ensures that one’s portfolio is well-prepared for whatever opportunities arise, it provides liquidity and helps to save for an emergency.<\/p>\n\n\n\n
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Read<\/strong>: What to expect for interest rates in South Africa after the Fed\u2019s 50 basis point cut<\/a><\/p>\n\n\n\n