Matters of Interest: Strategic cash management

In an environment of global economic uncertainty, corporate treasurers face the ongoing challenge of balancing liquidity needs with optimising returns on cash holdings. With shifting monetary policies, inflationary pressures, and fiscal uncertainty both in the US and South Africa, it is crucial to adopt a well-informed, strategic investment approach.

Nedgroup Investments Cash Solutions offers a range of liquidity and yield-enhancing strategies designed to navigate these complexities. Read this article for insights into the current economic landscape and an outline on what it means to have a disciplined approach to cash management that ensures resilience and competitive positioning.

The global and domestic economic landscape

US economic growth and monetary policy uncertainty

The US economy is experiencing moderate growth, with real GDP projected to slow to 1.5-2.0% in 2025, down from 2.5% in 2024. This deceleration reflects the impact of tighter monetary policy and fiscal consolidation, which are weighing on consumer spending and business investment. Despite these challenges, the labour market remains resilient, with unemployment stabilising at around 4.0%, providing some support to household consumption.

However, persistent inflationary pressures continue to complicate the outlook. US headline Consumer Price Index (CPI) inflation remains at 3.0% year on year (YoY), which is still above the Federal Reserve’s 2% target, while core inflation sits at 3.5% YoY, driven largely by services inflation in housing and healthcare. With inflation still elevated, the Federal Reserve is maintaining a cautious stance, keeping the federal funds rate at 4.50-4.75%. While markets are pricing in a possible 25 basis points (bps) rate cut in the second half of 2025, this will depend on further disinflationary progress and softer economic data.

For corporate treasurers, this environment underscores the importance of dynamic liquidity management and capital preservation strategies. The potential for interest rate cuts later in the year suggests a need for flexible allocation strategies that can adapt to shifting monetary conditions.

SA’s fiscal and monetary policy challenges

South Africa recently faced heightened fiscal uncertainty due to the postponement of the 2025 budget speech, driven by disagreements over a proposed 2% VAT increase. However, the revised budget presented on 12 March 2025, introduced a more gradual VAT adjustment, with a 0.5 percentage point increase in May 2025 and another in April 2026, bringing the VAT rate to 16% by 2026/27. While this phased approach aims to balance revenue generation with economic stability, it still introduces inflationary risks, potentially raising CPI inflation by 20-50 bps depending on passthrough effects.

This evolving fiscal landscape increases market volatility and adds pressure to monetary policy decisions, with the South African Reserve Bank (SARB) likely pausing its rate-cutting cycle for the remainder of 2025. For corporate treasurers, this highlights the importance of proactive liquidity management, strategic cash deployment, and a disciplined approach to credit and term structure positioning to navigate the shifting macroeconomic environment.

·       Inflation dynamics: SA headline CPI inflation rose slightly to 3.2% YoY in January 2025, primarily due to fuel base effects, while food inflation moderated to 2.3% YoY. Core inflation softened to 3.5% YoY, reflecting declines in vehicle, alcoholic beverages, and textile prices. However, persistent producer price pressures (PPI at 4.8% YoY for food products) suggest inflationary risks remain

·       Monetary policy outlook: Given the uncertainty surrounding the VAT hike and its inflationary impact, the SARB has signalled a pause in its rate-cutting cycle, and further easing in 2025 appears unlikely, with the SARB likely delaying any additional rate cuts until 2026

·       Fiscal risks and market sentiment: The “tax more to spend more” structure of the preliminary budget suggests ongoing inflationary risks. Should tax increases materialise, the SARB may take a hawkish stance, prioritising price stability over growth

Investment strategy for Corporate Treasurers in volatile markets

1. Managing liquidity with precision

With economic uncertainty persisting, corporate treasurers must strike a balance between liquidity and yield. Nedgroup Investments Cash Solutions provides a suite of tailored solutions that enable treasurers to optimise liquidity buffers while enhancing return potential through strategic cash deployment.

·       Money Market Funds (MMFs): Given the likelihood of a prolonged high-interest-rate environment, allocating to high-quality, short-term instruments ensures liquidity while capturing attractive yields

·       Cash Plus strategies: These provide an opportunity to extend duration slightly while benefiting from selective credit exposure, balancing stability with enhanced returns

2. Capitalising on yield opportunities

In the current landscape, yield enhancement is crucial. With SARB’s rate-cutting cycle nearing its end, locking in short- to medium-term fixed-income instruments could help treasurers secure attractive carry before rates potentially decline in 2026.

·       Diversified term structures: Allocating across variable-rate and fixed-income instruments can optimise returns while ensuring sufficient flexibility

·       Credit risk premiums: Selectively incorporating high-quality corporate credit exposure can add incremental yield without significantly increasing risk

3. Prudent risk management

With the evolving macroeconomic landscape, a disciplined approach to risk management is essential. This includes:

·       Scenario analysis: Stress testing investment portfolios against different inflation and interest rate scenarios to ensure resilience

·       Credit quality focus: Maintaining exposure to top-tier credit instruments that mitigate default risks

·       Regulatory compliance: Ensuring alignment with evolving Basel III and IFRS liquidity requirements, optimising capital efficiency

4. Tactical positioning for the future

The current economic conditions require a dynamic investment approach that remains agile in the face of potential rate movements. Nedgroup Investments’ actively managed cash solutions provide corporate treasurers with the flexibility to adapt to changing rate environments, ensuring capital preservation while maximising return opportunities.

Conclusion: Remaining positioned for stability and growth

In a world of economic and policy uncertainty, strategic cash management is more important than ever. Corporate treasurers must remain vigilant, proactive, and adaptable to optimise returns while preserving liquidity. Nedgroup Investments Cash Solutions provides a robust, risk-conscious approach to navigating this complexity, ensuring resilient portfolio performance through:

·       Disciplined liquidity management

·       Selective yield enhancement strategies

·       Active risk mitigation and regulatory alignment

As global and domestic markets evolve, partnering with experienced investment managers ensures corporate treasurers can effectively navigate uncertainty and capitalise on opportunities while safeguarding their cash investments.