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

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The Monetary Policy Committee of the South
African Reserve Bank has decided to cut

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interest rates in South Africa.

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It says here it's reduced the policy rate
by 25 basis points to 7%

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with effect from the 1st of August and the
decision was unanimous.

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With me here now to discuss the decision
and other matters as well is Vivian Tabra,

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Investment Director at 91 in Cape Town.

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That was very much expected, wasn't it,
Vivian?

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What did the governor say?

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What did Lesetra Cagnago say?

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That's probably more important.

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So as you say, Lindsay, it was very much
expected.

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The market had decided that there was
going to be a 25 basis point decrease

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given the relative

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dovishness that we saw in the last MPC.

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But as we know, I think the surprise that
came out of this meeting was that they

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intend to target the

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bottom of the range going forward.

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So...

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from now on and they certainly highlighted
that there are significant benefits to

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this over the longer term in terms of
having a lower

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inflation rate and having lower inflation
expectations and more stability that comes

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with that they have

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decided to target three percent as the
bottom of the three to six percent range

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that's very interesting because with the
rand

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suddenly going through 18 and that's very
much because of the strength of the us

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dollar after the fed last

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night And also with a couple of
commentators and a couple of the major

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banks saying that

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they think inflation by the end of the
year will be at 4%.

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So with the consensus or sort of mini
consensus being inflation rising,

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they're saying we're going to stick to
inflation staying where it is, which is

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exactly 3%.

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Yes.

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So I think, you know, we, along with the
rest of the market, are gradually looking

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for an increase in inflation as we move
towards the end of the year.

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I think in terms of the volatility that
we're seeing and the weakness in the RAND,

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as you say,

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that was driven in part by the Fed.

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But also we are now approaching the 1st of
August.

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So I think the market's probably also
looking a little bit at what's happening

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in terms of what's going to happen on the
tariff side.

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So that's also likely to have an impact.

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Plus, you have another impact coming from
the actual decrease in the interest rates

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themselves.

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So the RAND is facing a few...

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sort of minor headwinds here that it
hasn't faced over the recent weeks or

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recent months,

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bar that spike we saw a month or so ago.

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So yes, there will be a little bit of
pressure coming through from a weaker end.

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But I think more importantly, the pressure
at the moment seems to be coming through

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things like food prices and particularly
meat,

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where I think we're expecting those meat
prices to start to ease a little bit.

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But headline inflation is looking like
it's edging up.

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surprisingly, core inflation is actually
looking much better behaved.

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And I think there's been a bit of a focus
on that as well.

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And certainly core, we continue to see
coming in slightly lower than market

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expectations.

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What about the round 18, 12, 18, 13, as we
speak, Vivian,

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that's something that the Reserve Bank has
very little control over,

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given the fact that it is pushed and
pulled around by events globally.

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There is a concern, isn't it?

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Because if the round goes weaker, we
import inflation.

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Yes, we do to a certain extent, but I
think we should also be cognizant of the

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fact that we incline to focus very

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much on the RAND dollar exchange rate,
whereas we should be focusing more on the

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trade-weighted RAND.

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And, you know, the dollar has now in this
pullback strengthened against everything.

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It's not just against the RAND.

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So in terms of the trade-weighted RAND,
it's performing somewhat better.

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The target is now 3%, which is the bottom
of the 3% to 6%.

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target range.

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Was anything said on inflation targeting?

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Because that's been a hot topic recently.

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Well, I think Lesetra made it very clear
that they're using the same sort of

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rationale

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as they did from when they moved from six
to four and a half.

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In this move from four and a half to
three, they have obviously highlighted

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that there's ongoing technical discussions
and

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technical groups between Treasury and the
South African Reserve Bank with regard to

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what will happen to the official

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target.

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So for the moment, the target remains 3 to
6, but they are focusing on the bottom end

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of the target.

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And I think they made that very clear.

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How has the bond market reacted?

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So it was certainly expecting the move and
the market had reacted a little bit to

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that, sort of weakening a little bit.

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But if we look at it now, we have seen
that the 10-year bond has gone from 982

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down to 972.

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So we've seen yields rally 10 basis points
on the back end.

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That's a very nice move, actually,
considering the performance of the RAND

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that I keep on mentioning.

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Do you think that you'll sit down with
your team tomorrow and say, OK, 25 basis

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points, these comments came out,

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so we'll keep our policy and our
strategies the same?

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Or is there anything that you would say,
no, I think we ought to be tweaking our

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strategy a little bit, given what we've
just heard?

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I think, you know, in terms of our
strategy as a team and what we were

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expecting, we were expecting this,

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but we were also expecting inflation to
rise a little from here.

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We're expecting the inflation target to be
addressed, but only towards the medium

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term budget statement.

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So a couple of months of sort of the Saab
doing what it is doing without sort of

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having the backing of

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South African Treasury, so to speak.

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So it's pretty much been in line with our
expectations.

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So I think, you know, we positioned ahead
of this.

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we are relatively constructive on South
Africa.

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fixed income overall.

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And certainly this drop that we're seeing
now means that, you know, overall

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borrowing costs are coming down,

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both in the short end for the consumer,
but also overall for government,

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as we see sort of the 10 and longer end of
the curve move lower.

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Final question, Vivian, do you expect any
more cuts this year?

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We do not expect any more cuts for the
moment.

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But I think, you know, that is data
dependent.

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As Lissette also likes to say, we will be
closely watching what happens in the RAND.

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and what happens to food prices and
particularly to administered prices and

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inflation expectations.

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Vivian, thanks so much for your time.

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Vivian Tabor is Investment Director at 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.