In March, several central banks in advanced economies held monetary policy meetings. Despite differing stances on monetary policy, they all highlighted trade tariffs as an uncertainty that could impact their economic forecasts. The US Federal Reserve, Bank of England (BOE) and Bank of Japan (BOJ) decided to keep interest rates unchanged, in line with market expectations. In contrast, the European Central Bank (ECB) cut all three of its key interest rates by 25 basis points. The ECB’s Governing Council noted that the "disinflation process is well on track" and expects inflation to stabilise around the 2.0% target over the medium term.

The yields on the benchmark 10-year bonds in Germany and France increased by 33 basis points and 31 basis points respectively, closing the month at 2.74% and 3.45%. In the UK, the 10-year yield rose by 19 basis points, reaching 4.67%. In contrast, the yield on the US 10-year bond remained unchanged throughout the month, holding steady at 4.21%.

US February CPI inflation data came in better than expected, with the headline figure dropping from 3.0% in January to 2.8%, which was below the consensus estimate of a 2.9% year-on-year increase. Core CPI also showed a more favourable result at 3.1%, compared to the anticipated 3.2%. The initial market response saw a decline in US 10-year Treasury yields and a weakening of the dollar. This suggests that inflation may be easing more than anticipated, which could shift market expectations about future interest rate hikes by the Federal Reserve.

In local news, the Minister of Finance finally tabled the 2025 Budget, with the key highlight being a more moderate 0.5% increase in VAT, compared to the previously proposed 2.0% hike in the untabled budget. By opting for a smaller VAT increase, the National Treasury is signalling its commitment to fiscal consolidation. However, the fate of this proposed budget remains uncertain, as several parties within the Government of National Unity (GNU) express differing views on the content and proposals. In other domestic news, the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) left the repo rate unchanged at 7.50% during its meeting in March, in line with expectations.

Local CPI inflation remained steady in February at 3.2% year-on-year (0.9% month-on-month), still well below the target midpoint of 4.5% YoY. Despite this, it was a month of relatively high price pressures according to the surveyed data. Core inflation, which excludes food, non-alcoholic beverages, fuel, and energy prices, dropped slightly to 3.4% YoY in February from 3.5% in January, reflecting the moderate nature of underlying inflation in South Africa.

In the local bond market, the yield on the R2030 declined by 4.3bp, while the R2048 rose by 20.9bp in March. The ALBI returned 0.19%, with support stemming from the front-end and the belly of the curve. The back end of the curve detracted from performance, however.

Inflation-linked bonds delivered muted performance for the period. The yield on the long-dated inflation-linked bond, I2050, increased by 6.2bp in March. Both the FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) were broadly flat during March.

In the money market, the 3-month Johannesburg Interbank Average Rate (JIBAR) remained flat at 7.56% in March, while the 12-month JIBAR declined to 8.09%. The Alexander Forbes Short-Term Fixed Interest (STeFI) index, a common benchmark for money market funds, returned 0.64% for the month.

The Rand has experienced some weakness against the Euro since the start of this year, at R19.58/EUR at the open of 2025, reaching R19.90/EUR by the middle of March. The Rand has been particularly volatile against the US dollar, at R19.23/USD in mid-January, but at that stage market expectations for US interest rate cuts had been largely factored out for this year. More recently, however, markets have factored them back in. The Rand eventually ended the quarter at R18.32/USD.

Looking ahead, we maintain a cautious stance amid heightened global market volatility. We continue to monitor global interest rate policies, inflation trends and their potential impact on local markets. We remain committed to a holistic investment approach, guided by the many factors influencing interest rate movements.