Rand dips as SARB puts rates on ice and Eskom warns on power outages
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THE RAND FELL to a three-and-a-half month low yesterday, closing R14.73 to the dollar after Eskom announced a new bout of power cuts and interest rates were put on ice.
The South African Reserve Bank (SARB) unanimously voted to keep its benchmark repo rate unchanged at a record low of 3.5 percent during its July meeting. This was in line with expectations as the Covid-19 virus continues to weigh on global prospects and the recent unrest in parts of the country was likely to slow the ongoing recovery.
The bank gave guidance that interest rates would start rising, with an increase of 25 basis points, in the fourth quarter of 2021 and in each quarter of 2022.
Investec chief economist Annabel Bishop said the SARB’s unchanged stance on interest rates saw the rand weaken to R14.66 to the dollar, with many emerging markets central banks having hiked rates.
Bishop said volatility had increased in the domestic currency on rising risk aversion as the Delta variant spreads globally, causing commodity prices to moderate.
The gold price is also down 7.8 percent since the start of this year and base metal prices have also fallen.
“Unevenness in global economic recovery was to be expected as waves of Covid-19 waxed and waned around the world, impacting financial markets and commodity prices, and so causing volatility in commodity currencies, with the rand particularly at risk,” Bishop said. “The drop in metal prices has had a particularly suppressing effect on the rand and could weaken further,” she said.
SARB warned that the risks to the inflation outlook appeared to be on the upside, despite weaker-than-expected services inflation outcomes in recent months.
The bank revised headline consumer price inflation for 2021 slightly higher to 4.3 percent, up from 4.2 percent, and revised lower to 4.2 percent from 4.4 percent in 2022.
FNB chief economist Mamello Matikinca-Ngwenya, however, said unchanged interest rates provided temporarily relief to consumers and businesses.
“The pandemic has rattled the economy and the impacts should linger, with gross domestic product only reaching 2019 levels in 2023,” she said.
“In addition, resurgent waves of Covid-19 infections and related lockdown restrictions pose a risk of slowing the recovery.”
Further risks to the economic recovery remained the unreliable energy supply in the country as Eskom continues to grapple with breakdowns at its ageing coal-fired power stations.
Eskom yesterday implemented 6-hour Stage 2 loadshedding due to a shortage of generation capacity, coupled with the severely cold weather in parts of the country.
The power utility said a generation unit each at Tutuka and Medupi Power Stations were forced offline yesterday, increasing the capacity constraints on the power system.
Further, a unit each at Medupi and Tutuka that were expected to return to service were delayed, further contributing to the shortages.
BUSINESS REPORT ONLINE