(Bloomberg) -- Traders are increasingly betting that South African inflation will slow toward the midpoint of the range targeted by the country’s central bank, giving policymakers room to pivot to an easing cycle by the fourth quarter.

The five-year breakeven rate, a market measure of price-growth expectations, fell Wednesday to trade at 4.97%, its lowest level in 16 months, after the release of May inflation data. Consumer prices rose 5.2% from a year earlier, maintaining the pace of growth seen in April. The South African Reserve Bank’s target range is 3% to 6%, which is where it prefers to anchor expectations.

Options trading shows that investors are pricing an about 36% chance of a 25 basis-point interest-rate cut at the SARB’s July meeting. There is 100% conviction for a cut of that magnitude in November, with an 80% chance of a bigger move of 50 basis points.

“We expect SARB to deliver 50bp worth of cut this year followed by another 50bp in the next year, amid falling inflation and better risk sentiment toward ZAR and South African assets,” said Marek Raczko, a strategist at Barclays Bank Plc in a note to clients.

Raczko said market pricing currently suggested shallower cuts than those forecast by Barclays, likely reflecting uncertainty around Federal Reserve policy on US rates.

Barclays recommends entering an interest-rate swap agreement, where investors receive a fixed rate while paying a floating one. In the specific case of a 5-year ZAR Interest Rate Swap, investors would receive fixed payments based on an 8.30% rate and pay variable payments that fluctuate with the market, with the goal to benefit from potential declines in the interest rate. The target is 7.70% and the stop is at 8.60%.

Lower inflation and improved sentiment around political developments following the May election, meanwhile, will likely benefit local bonds, according to Raczko.

“Longer-dated SAGB rallied rapidly after formation of the new ruling coalition, and we expect this optimistic stance to remain for now,” he said.

The yield on notes due in 2035 traded at 11.25%, the lowest since April last year. Tuesday’s weekly government bond auction received orders in excess of 19.16 billion rand ($1.1 billion), more than five times the 3.75 billion rand of securities on sale. This compares with a ratio of 3.9 at the previous auction, according to central bank data compiled by Bloomberg.

(Updates throughout.)

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