News in South Africa 20th July:

1. Division over interest rate hikes:

Economists are divided over whether South Africa’s central bank will pause interest-rate increases on Thursday, or extend its longest phase of monetary tightening since 2006. 

Division over interest rate hikes
Photo by Joslyn Pickens

Deteriorating inflation expectations, currency risks and enhancements to the South African Reserve Bank’s quarterly projection model, used to inform its rate decision, are clouding the outlook.

The uncertainty has left economists split in predicting the central bank’s move. HSBC, Citigroup, RMB Morgan Stanley and Barclays are among the majority expecting a quarter percentage point hike to 8.5%. Goldman Sachs, Deutsche Bank and Standard Chartered see no change, according to a Bloomberg survey.

“With three months of large declines and downside surprises to inflation, the recent strengthening of the rand, and the weak state of the real economy, we expect the SARB to keep rates on hold,” Goldman’s Andrew Matheny and Bojosi Morule wrote in a client note.

Forward-rate agreements used to speculate on borrowing costs show traders are less certain that a quarter-point increase is a done deal after softer-than-anticipated inflation data on Wednesday. Traders dialed back bets on a hike to around a one-in-four chance.

Annual inflation slowed by more than expected to 5.4% in June, dipping beneath the central bank’s target ceiling for the first time in 14 months on lower food costs. The central bank targets price growth at 3% to 6% and prefers to anchor inflation expectations at the midpoint of the range. 

The rate decision, expected shortly after 15:00, could hinge on the vote of a single monetary policy committee member. The median expectation of economists in a Bloomberg survey is that the five-member MPC will vote three in favor of a 25 basis-point hike, and two for a pause. 

2. SA passport climbs global rankings:

The strength of South Africa’s passport has grown slightly, ranking as the 51st most powerful out of 103 rankings in 2023, up from 55th in 2022.

This makes it the third strongest passport in the African region, though it trails Seychelles (24th) and Mauritius (29th).

This is according to the 2023 Henley Passport Index by Henley & Partners released on Tuesday.

The country’s citizens can visit 106 of 227 destinations around the globe without a visa, a third of which are on the continent.

Back in January 2022, South Africans were able to visit 104 countries without a visa (based on Henley’s research) and by August last year this had increased to 105 countries.

In terms of rankings, SA’s best showing was in 2009 when it came in 35th spot, while in 2014 it ranked 41st. The country has not been below the 50th spot since 2014.

The continent least open to South African nationals is Europe, which only grants visa-free access to four countries (Georgia, Kosovo, Ireland and the Russian Federation).

3. Bad news for petrol prices:

South African motorists should prepare for a petrol price hike in August, economists warn.

Stats SA reported a lower-than-expected headline inflation rate on Wednesday (18 July) at 5.4%, down from 6.3% recorded in May.

According to Investec analyst Annabel Bishop, one of the drivers of lower inflation has been the declining petrol price, which fell by 71 cents per litre in June and fell further in July with a drop of 17 cents per litre.

However, the picture is shifting for August – with current data pointing to a probable petrol price hike of 9 cents a litre. Fortunately, this is unlikely to impact August’s CPI, Bishop said.

The latest data from the Central Energy Fund shows that the picture has changed for petrol prices since the start and middle of the month.

After showing a flat rate or slight decrease on the cards of petrol prices in August (-4cpl to +4cpl, depending on grade), rising global oil prices have pushed all fuel grades into under-recovery territory.

The CEF is showing a petrol price hike of between 3cpl and 9cpl on the cards for August.

The situation is even worse for diesel, with the CEF showing an under-recovery of 47cpl (unchanged from mid-month).

4. Koeberg delays cost R120 billion:

The closure of Koeberg’s Unit 1 since January 2022 has cost the South African economy R120 billion so far on top of the cost of refurbishing the power plant. 

This is according to energy analyst Clyde Mallinson who spoke to Newzroom Afrika following the Electricity Minister’s update on South Africa’s Energy Action Plan. 

Mallinson has previously argued that Koeberg should not be refurbished at all, as the country desperately needs its reliable supply of electricity. 

Each of Koeberg’s units can generate 920MW of electricity, roughly equivalent to one stage of load-shedding.

South Africa’s only nuclear plant could help the deterioration of Eskom’s coal fleet, while other energy experts have warned that Eskom’s grid cannot operate without the stabilising influence of Koeberg. 

“I would prefer Koeberg to bat for us until the end of July 2024 and then retire gracefully,” Mallinson said. 

He also said that Eskom no longer has the ability to execute a project such as the refurbishment of a nuclear power plant. “They are flirting with their licence. It has been a mess.”

The refurbishment of Koeberg began 18 months ago, with the replacement of its two steam generators expected to take six months each. 

Unit 1 is still offline, and its steam generator is yet to be replaced, while Unit 2 is expected to go offline in September. 

Electricity Minister Kgosientsho Ramokgopa said he is “very, very worried” that the refurbishment is behind schedule at a media briefing on Monday. 

Ramokgopa also warned that there might be an overlap where both of Koeberg’s units are off simultaneously. 

5. Joburg explosion:

Following a major explosion on Bree Street in Johannesburg’s CBD, one person has been found dead underneath taxi rubble, with over 40 others injured and 37 vehicles damaged.

Gauteng Premier Panyaza Lesufi said that the process of identifying which areas have been affected has started, particularly those that have a significant impact on the economy and social activity of the city, such as courts.

He added that officials are still searching for the explosion’s source, with Egoli Gas saying that it wasn’t one of their pipelines as customers in the area still had service.

All information sourced from articles posted by: Fin24, Moneyweb, BusinessTech, Daily Investor, and News24.

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