CPIX inflation for the year to August 2008 worsened to 13.6% from 13% in July 2008. This was higher than the 13.2% expected, with the increase mainly due to rising food prices. Producer Price Inflation for August 2008 increased to 19.1% from 18.9% in August 2008. This was however lower than the 19.5% expected.

Credit extension to the private sector (PSCE) decreased to 18.6% in August from 19.8% in July 2008. The slowdown in credit extension to households indicates that the interest rate increases are having an effect on consumer spending.

The Forward Rate Agreement curve (FRA) rallied towards the end of September after initially weakening in the early part of the month as indicated in the graph below. The FRA curve continues to imply that rates will be cut early in 2009.

The Money Market Fund currently invests in a variety of investments. The maturities range from one day (overnight money) to no greater than 365 days. Investments in longer-dated instruments would require sufficient yield pick up over short-dated maturities. The average maturity of the investments is currently about 88 days.

As at 30 September 2008 the Fund's exposure to the highest rated short-term instruments as assigned by international rating agencies was 94%. International rating agency, Fitch, assigns a F1+(zaf) rating to denote its highest short-term rating. The Fund does not have exposure to F2 (zaf)-rated instruments even though the CISCA rules do not prohibit money market funds from taking such exposure. The Fund does not have any exposure to derivative financial instruments.

CPIX inflation for the year to May 2008 worsened to 10.9% from 10.4% in April 2008, against a higher than expected 10.7%. The Producer Price Inflation for May 2008 increased to a shocking 16.4% from 12.4% in April 2008. The main contributor was increases in the steel prices. The Forward Rate Agreement market ticked up on the release of this number.

Credit extension to the private sector (PSCE) increased slightly to 19.7% in May from 19.6% in April 2008. The growth in credit extension to households slowed which suggest that recent interest rate increases is having an effect on consumer spending.

The fuel price and the electricity tariff increases in July are bound to exert upward pressure on inflation. Hence the outlook for inflation continues to deteriorate. This strengthens the case of another interest rate increase at the August monetary policy meeting of the Reserve Bank.

The Money Market Fund is currently investing in a variety of investments. The maturities range from one day (overnight money) to no greater than 365 days. Investments in longer-dated instruments would require sufficient yield pick up over shortdated maturities.

As at 30 June 2008 the Fund's exposure to the highest rated short-term instruments as assigned by international rating agencies was 93%. International rating agency, Fitch, assigns a F1 +(zat) rating to denote its highest short-term rating. The Fund does not have exposure to F2 (zat)-rated instruments even though the CISCA rules do not prohibit money market funds from taking such exposure.