“During the mid to late 2000’s, South African investors requiring income could
invest in the money market and earn an attractive income with little risk to their
capital. By late 2008, short-term interest rates peaked at 12%, while inflation was
just over 8%, generating substantial real returns.
While this ‘income nirvana’ was coming to an end as a result of the secular
decline in interest rates in South Africa, it was brought to a head following the
Global Financial Crisis, when central banks anchored interest rates at record low
levels. In the subsequent years, money market returns fell to a level where
investors were, until fairly recently, guaranteed negative real returns as policy
makers were more concerned about stimulating growth at the expense of wanting
to contain inflation.
Even though interest rates in South Africa began to rise in January 2014
(from 5% to 5.5%), followed by a move to 6% in July 2015, real yields in South
Africa are expected to remain below the long-term average of around 2.5% for
years to come.”