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You're listening to Strictly Business
Podcast with Lindsay Williams.

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The World Central Banks have been very
active in the last part of January 2025.

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We've had the Bank of Japan, they raised
rates, but we're not going to talk about

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them.

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We're going to talk about a couple of
others.

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We had the ECB and they cut rates by 25
basis points.

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But what I want to focus on is the U.S.

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Federal Reserve's Federal Open Market
Committee and also the South African

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Reserve Bank's monetary...

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policy committee.

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They both had meetings and with me to
review this monetary policy activity is

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Ruan Naidoo,

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who's a portfolio manager at 91 in Cape
Town.

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It's been an interesting year, Ruan.

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Welcome, by the way.

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And there's been a sort of a shift.

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A year ago, everyone said, thank goodness
inflation is coming down and thank

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goodness we're going to get cuts across
the board.

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The emphasis has shifted slightly, don't
you think?

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Hi, Lindsay.

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Thank you very much for that introduction.

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Yes, certainly there has been a shift in
the emphasis from the FOMC.

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And I think this shift really took place
in the December meeting last year where

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Fed Chair Jerome Powell made the statement
that we were entering a new phase of

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monetary policy.

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And after the January FOMC meeting,

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it's become clearer that this new phase
could probably best be characterized as.

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wait and see mode.

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The Fed is clearly in no hurry to move
interest rates after having cut 100 points

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last year.

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And our view is that going into the March
FOMC meeting, we're likely to see them

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remain on hold.

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Yes, the market seems to be saying that
there's a possibility of a cut in June,

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whereas before we were talking about
three, maybe even four cuts in 2025.

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That was the feeling last year.

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Is it because of...

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the so-called stickiness of inflation or
are there other factors as well

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the the fed chair jerome paul has
characterized inflation um very positively

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uh he seems to

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be very dovish in his view on where
inflation is heading and he seems

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confident that it's going to reach

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the target but there are risks to that
outlook and those risks stem specifically

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from

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u.s policy They mention tax policy,
immigration policy,

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they mention tariff policy, as well as
regulation.

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And it's the difficulty to distill this
into an inflation and growth outlook that

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is keeping them cautious,

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in my opinion.

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It's very interesting because what he's
doing is almost second guessing the new

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president, the 47th president of the
United States of America.

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You know who?

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Donald J.

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Trump.

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So he's saying, well, if the tariffs come
into force and, for example.

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They are threatening, as we pre-record
this on the Friday.

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On the Saturday, they're saying there's
going to be 25% increases on goods coming

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from Canada and

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Mexico.

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So Jerome Powell's saying we can't do
anything until we know what the story is.

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And the other thing in this rather long
question for you, Ruan, is that Donald J.

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Trump was furious with the fact that
interest rates did not come down.

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And he posted something quite nasty.

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on his Truth Social media platform.

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A little bit dangerous, I think.

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Yes, it is definitely a worrying
development in terms of

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Fed independence and central banking
independence in general.

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I was pleased by the response that Jerome
Powell gave in his comments at the press

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conference,

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basically trying not to comment very much
with regard to...

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Donald Trump's policy or the new
administration's policies.

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How this really impacts inflation
expectations is the main point of

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consideration.

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And at this point, we're starting to see
some of these inflation expectations begin

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to take up.

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So if you have a president calling for
artificially low interest rates,

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we've seen what that has done in many
developing economies around the world.

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It is not a good space for central banks.

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No, it's not.

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One of the great things about South
Africa, Ruan, is that the South African

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Reserve Bank has always, in my opinion,

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behaved responsibly, independent and at
times rather conservative.

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But I think it served the country well.

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What did the South African Reserve Bank
say after their decision to cut rates by

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25 basis points?

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Yes, agreed.

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Certainly the South African Central Bank,
the SARP, has tremendous credibility in

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the marketplace.

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Yes.

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And that institutional strength is one of
the key features that keeps South African

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ratings higher than otherwise.

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The South African Reserve Bank...

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did decide to cut interest rates by
further 25 basis points yesterday.

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However, this was done in a split vote.

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Two members of the committee prefer to
have held interest rates steady at this

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meeting,

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which potentially means that we are now
going to be in a pause or on hold period

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for a period of

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time, while we also wait for our reserve
bank to get a better grip on

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on the outlook from the United States.

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Yes, how does the RAND factor come into
play here as well?

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The RAND has been, and it was threatening
to go to all-time lows fairly recently

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against the US dollar.

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It's steadied a bit now,

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but if the US dollar starts to rally
because of the Jerome Powell stance on not

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cutting rates as many times as many people
thought, and the dollar strengthens even

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more,

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and the RAND weakens even more, do you
think...

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that is in the back of Liceche Cognago's
mind?

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Oh, certainly.

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In fact, the central bank had actually
indicated a scenario in which we would see

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a 10

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percentage point

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tariff on all imports into the US and some
sort of retaliatory measures by other

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countries.

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And under that scenario, our monetary
policy committee projects that the RAND

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could depreciate to nearly

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21 RAND to the With that kind of a
depreciation,

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the estimates is that inflation locally
will reach 5%.

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And perhaps somewhat comfortingly,

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the policy rate would only trend higher by
half a percentage point on the back of

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that type of scenario.

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So that's the precise sort of estimates
that the Reserve Bank has provided us with

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regards to the tariff war.

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Okay, so in summary, we've had the Bank of
Japan raising rates.

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Very, very slightly, but still a raise it
was.

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The ECB cutting rates, the South African
Reserve Bank cutting rates,

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and the US Federal Reserve leaving rates
on hold.

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What does that mean for you, for income
investors?

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What does it mean for your strategy at 91?

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This kind of environment with evolving
interest rates, macro volatility,

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really does suit active strategies.

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For example, diversified income fund,
which is seeking to both participate in

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rallies in bond markets,

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markets, which we are likely to get in the
event that inflation is lower and we do

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not see

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the kind of tariff impacts some are
predicting.

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But also on the other side, the
Diversified Income Fund is seeking to

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protect capital in difficult environments

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of risk of the kind of potential
environments we would see if tariffs are

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implemented and some of the

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more onerous policies of the United States
comes through.

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Okay, but no massive changes given what
we've seen at the end of January, but just

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maybe a tweak here and there?

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Yes, we had participated in the rally in
interest rates during the course of last

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year.

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So we have reduced our interest rate
exposure on the funds slightly.

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We have increased some of exposure to
dollar assets on the back of the potential

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for the dollar

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to strengthen.

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And I should.

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we see tariff announcements come through.

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In our property building block, we spent
much of last year, the latter part of last

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year,

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overweight in South African property
names, given some of the risk premia that

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was going to be expected to come out of

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prices.

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And we have subsequently switched some of
that exposure into offshore names

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going into this year.

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Interesting times, Ruan.

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Thank you very much for your analysis.

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That was Ruan Naidoo.

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portfolio manager and 91 in Cape Town.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy,

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position or opinion of any other agency,
organisation,

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employer or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
reflective of the position of any other

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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change,

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revision and rethinking at any time.

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Please do not hold us to them in
perpetuity.