Both headline and CPIX inflation rose in line with market expectations, the latter coming in at 5% year-on-year. The lower oil price over the past few weeks may have a dampening effect on inflation in the months ahead, thus restricting some of the expected increases.

PPI inflation printed well above market forecasts coming in at 9.2% year-on-year, the highest level in some time. This was largely driven by fuel and raw food price increases. Growth in money supply (M3) was below market consensus year-on-year, but private sector credit extension (PSCE) continued to remain strong. This continued strength in PSCE remains a concern to the Reserve Bank because of the inflationary implications.

The Money Market Fund is currently invested in a variety of investments that have maturities ranging from one day, or so called overnight money, to 12 months. Currently there is a significant amount of yield enhancement on offer for longer dated deposits. The average maturity of the Fund is now close to the 90day maximum.

The forward rate curve is pricing further rate hikes of approximately 1 % within the next year, but then begins to discount a possible decline in rates later in 2007. The Monetary Policy Committee (MPC) will be meeting in the second week of October. Consensus views are for another 0.5% hike in the repo rate.

At the June Monetary Policy Committee (MPC) meeting, the MPC decided to hike the repo rate to 7.50%, as they were concerned about inflation breaching the top end of the target range in 1 Q07. The forward rate curve is pricing further rate hikes of approximately 1.5% within the next year.

The Fund is invested in a variety of investments with maturities ranging from one day, or so called overnight money, to 12 months. When there is a move in the repo rate, the overnight rate adjusts immediately as banks offer higher interest rates for cash. For any fixed investment that has been invested for longer, the interest rate of that investment stays fixed unti I the maturity of that deposit.

Approximately 10% of the Fund was invested in overnight investments and benefited immediately from a higher cash rate. The longer-dated deposits - which were already bought at higher rates than those currently available from overnight money - will only be reinvested once they mature. When these investments mature we have the option of investing in cash at the then rul ing rate (currently 7.10% to 7.20%), or alternatively we can place these funds into longer-dated fixed deposits, depending on the rates on offer from these investments.

Currently, the whole Fund re-prices within 60 days on average. In other words, on average, all fixed deposits mature within 60 days.

Headline CPI and CPIX were below consensus market forecasts. PPI inflation, year-on-year, also printed slightly below market expectations. In contrast the growth in money supply (M3) and private sector credit extension (PSCE) rose above market expectations year-on-year.

The highest yields are currently obtained through three- to six-month investments and as a result a large portion of the Fund is invested in three- to six-month negotiable certificates of deposits. Little yield enhancement is on offer for longer-dated deposits up to 12 months.

The forward rate curve is discounting a possible rate hike within the next year. Given the latest statements from the Governor of the Reserve Bank, further repo rate cuts seem unlikely.

CPIX inflation numbers released in December surprised the market on the lower side while headline CPI was in line with market forecasts. PPI inflation printed well above market expectations. Money supply (M3) growth was below consensus figures, while growth in private sector credit extension (PSCE) was slightly above market forecasts.

The Monetary Policy Committee (MPC) decided to leave the repo rate unchanged at 7% at the December meeting. The forward rate curve is still discounting a possible rate hike within the next year.

Most of the Fund's investments are invested for up to four months as this offers the best yields in the current environment. There is little additional yield enhancement for deposits with a duration of between five and 12 months.