A fuel price increase will be the first major expense to hit South Africans as a result of a weaker rand‚ the Automobile Association of SA (AA) has warned.
The AA’s mid-month data forecasts that petrol will rise 55c a litre in May‚ while diesel will cost about 30c a litre more. Illuminating paraffin will cost an estimated 41c a litre extra.
The fuel-hike predictions are based on unaudited mid-month fuel price data released by the Central Energy Fund.
“The loss of confidence by investors and the sovereign ratings downgrades by ratings agencies Fitch and S&P‚ have led to the rand slipping against the US dollar‚ down from around R12.35 at the beginning of the month to its current position of around R13.40‚” said the AA’s Layton Beard.
The AA said the rand’s weakness largely contributed to the expected fuel price increase‚ with hikes in international petroleum prices accounting for the balance.
“However, there is no certainty that the impact of the downgrades has been fully priced into the economy. The picture for May could be substantially different‚” Beard said.
By Suthentira Govender for www.businesslive.co.za
South Africa Reserve Bank Governor Lesetja Kganyago discusses currency manipulation, the performance of the rand, and the future of the central bank’s rate increase cycle.
South Africa’s central bank can’t yet call the end of its interest rate-increase cycle, even as the risks to inflation have eased since the Monetary Policy Committee’s January meeting, Governor Lesetja Kganyago says.
“It’s too early for me to make the call as to whether we are still on the tightening cycle or not,” Kganyago said in an interview with Bloomberg Television’s Jonathan Ferro. “We can’t say that” the increase cycle is now over.
Kganyago said in November the MPC may be close to the end of the tightening cycle in which it raised the benchmark lending rate by 200 basis points over two years to 7 percent by last March. This was in bid to bring price growth back to within the government’s target band after being outside it for most of last year as a drought raised food prices and the rand reached record lows.
The MPC, which will announce its next policy move on March 30, targets inflation between 3 percent and 6 percent.
Price growth eased to 6.6 percent in January, the first slowdown in five months, and five-year breakeven rates, a measure of inflation expectations, fell to the lowest since April 2015 on Friday. Oil and food price still pose risks, Kganyago said.
The risks to inflation have “definitely been mitigated compared to the previous policy-setting meeting,” he said. “Clearly, the recovery of the currency helps, but the rise in oil prices doesn’t help. Clearly the good rains help and the price of grains will come down, that helps, but that farmers are restocking their herds and meat prices remain high, doesn’t help.”
The rand was little change at 12.7712 per dollar by 3:02 p.m. in Johannesburg on Friday. Yields on rand-denominated bonds due December 2026 fell two basis points to 8.52 percent.
Economic growth in Africa’s most industrialized nation slumped to 0.3 percent for 2016, lower than government and central bank estimates, and the slowest rate since a recession seven years earlier
The central bank forecasts the economy will expand 1.1 percent this year, and 1.6 percent in 2018. There is still significant downside to growth, Kganyago said.
By Arabile Gumede for Bloomberg
The odds have gone up for an interest rate hike in SA next week, after better-than-expected US jobs data shored up the dollar.