News in South Africa 23rd January:
1. Interest rate decision:
South Africa’s Monetary Policy Committee (MPC) will hold its first meeting of the year to decide on interest rates on Thursday, and while economists agree that the central bank will continue to hike rates, they are split on the size of the increase.
Last year was characterised by runaway inflation, spurring reserve banks of major economies around the globe to put on an aggressive fight to curb it by raising interest rates.
The South African Reserve Bank (Sarb) has raised interest rates by a cumulative 350 basis points (bps) since the end of November 2021, taking the prime lending rate to the current 7% – higher than pre-pandemic levels.
Although many economists and market watchers are pricing in another increase come Thursday, they believe the Reserve Bank is nearing the peak of its hiking spell – with 50% of the panelists in a Finder.com Sarb Repo Rate report saying the peak is here.
Another 36% believe the peak will come only in March.
The report quizzed 27 panelists, with 59% forecasting that the rate will increase by 50bps, and 33% factoring in an increase of 25bps.
Almost 19% are of the opinion that the rate should be left unchanged.
“While risks of a final 50bps hike in the cycle are elevated, we think there is good reason to pause and assess the impact of historical tightening. A stronger FX and lower oil prices create the breathing room to do so,” Andrea Masia, senior economist at Morgan Stanley, says.
Due to sticky inflation, a vulnerable currency outlook, and disinflation concentrated on fuel prices as core inflation continues to climb, BNP Paribas chief economist Jeff Schultz thinks an increase by 50bps is due.
“Though the decision is likely to be a close call and split between those advocating for 25bps and those advocating for 50bps, we think that persistently large uncertainties that remain on the domestic inflation outlook will sway the committee to buy itself a bit more insurance and hike 50bps,” he says.
Despite consumer price inflation (CPI) slightly cooling, and the latest print for December showing a decrease to 7.2% from 7.4% in November, the Sarb will likely continue to keep its laser-sharp focus on inflation, in attempts to bring it back to the midpoint of its 3% to 6% target band, says Jan-Daan van Wyk, investment management senior analyst for Stonehage Fleming.
2. Eskom clarifies permanent load shedding:
Power utility Eskom says that it has not announced permanent stage 2 and 3 load shedding in South Africa.
Responding to various reports on Sunday declaring permanent stage 2 and stage 3 load shedding is hitting the country for the next two years, Eskom spokesperson Sikonathi Mantshantsha said that this was a measure that was considered but ultimately rejected.
“Eskom has considered implementing permanent Stage 2 and 3 load shedding to give more predictability to the public. As (chief executive) Andrè de Ruyter stated during the session, this is not possible as it would not guarantee that load shedding would remain at the lower levels,” he said.
“(Headlines implying) there will be permanent stage 2 and 3 load shedding (are) inaccurate.”
The apparent confusion over permanent load shedding emanates from comments made by Eskom chairperson Mpho Makwana who stated that permanent load shedding would have to be implemented to give Eskom room to conduct necessary maintenance to its power stations and to give some level of predictability or consistency to South Africans impacted by blackouts.
He said that Eskom’s recovery plan would unfortunately not play out quickly and that it would take at least two years for the power utility to get its energy availability factor (EAF) up to 70%.
“The recovery of generation performance will not happen within a short space of time, the execution of the recovery plan requires that power stations are given space and headroom to execute the recovery plan this requires either adding additional capacity to create space to do proper maintenance without firefighting , or create some predictability by implementing a permanent stage 2 or 3 for the next two years in order to give sufficient space for maintenance while giving the country a level of predictability or consistency to plan the livelihoods better. Shuttling from one stage to another within a short space of time is not good for the business community.”
As part of the recovery plan, Eskom will be addressing systemic issues, especially those relating to leadership and the entire organisational culture of the power utility, he said.
Later during the same presentation, Eskom CEO Andre de Ruyter said that permanent stage 2 and stage 3 load shedding would not guarantee that Eskom could keep load shedding at those levels, and that the instability of the grid would lead to instances of higher stages of load shedding.
He did not say that this plan was not happening, however – this was only clarified later.
Whether it is Eskom’s official plan to move to permanent load shedding or not is effectively moot. South Africa has been in a state of permanent load shedding since September 2022.
3. Cyril wants electricity hike suspended:
President Cyril Ramaphosa has appealed to the board of South Africa’s cash-strapped power utility to suspend its biggest electricity-price increase in more than a decade as the nation faces two more years of rolling blackouts.
Eskom won approval by the national energy regulator to raise electricity tariffs by an inflation-beating 18.65% and 12.74% for the next two years on January 19. The first increase is set to take effect in April.
“It will not be fair to impose the tariff on our people while there is load-shedding,” he said, using a local term for power cuts.
Ramaphosa’s comments come after Eskom said the country could face two years of persistent blackouts as it overhauls its ageing power stations. He spoke in the central Free State province.
Eskom produces almost all the country’s electricity, and blackouts curb output in Africa’s most industrialized economy.
Intense outages imposed earlier this month have taken a toll on industry and agriculture, and there’s a 45% chance of the nation slipping into a recession this year, a Bloomberg survey of economists shows.
4. Govt lifts cap on private power:
As South Africa suffers record load shedding, the National Energy Crisis Committee (Necom) has reported back on progress with implementing President Cyril Ramaphosa’s power crisis plan, which was announced last year.
The latest developments include that government has finally lifted the licensing threshold for private power generation projects.
New legislation has been gazetted to remove the 100MW licensing threshold for these projects. This means that solar and wind projects of any size can be built without a licence.
Towards the end of 2021, government raised the threshold from 10MW to 100MW.
Since then, private sector companies have launched 100 projects which will bring more than 9 000MW to the grid. Eskom’s entire fleet has a capacity of around 45 000MW.
The first of these private sector projects should connect to the power grid by end-2023. Necom expects the recent removal of the licensing threshold will “significantly” accelerate private investment.
5. Petrol price hikes incoming:
Fuel prices in South Africa have taken a turn, with current forecasts pointing to a petrol price hike in February.
Mid-month data from the Central Energy Fund (CEF) showed a small petrol and diesel price drop for February but pointed to a downward trend in the over-recovery of prices.
This downward trend has now turned the over-recovery into an under-recovery, flipping the script and indicating a possible price hike next month.
Data for the week ending 20 January 2023 shows an under-recovery of 25 to 32 cents per litre for petrol. For diesel, 0.05% sulphur diesel could be going up by 6 cents per litre, while 0.005% could still be coming down by 6 cents per litre.
- Petrol 93: increase of 32 cents a litre;
- Petrol 95: increase of 25 cents a litre;
- Diesel 0.05%: increase of 6 cents a litre;
- Diesel 0.005%: decrease of 6 cents a litre;
- Illuminating paraffin: increase of 8 cents a litre.
The daily snapshots from the CEF show current market conditions related to the fuel price. The official fuel price adjustment takes a bigger view of conditions throughout the month and includes additional changes like levy adjustments.
Despite this caveat, the snapshots give a good idea of where fuel prices are heading.
All information sourced from articles posted by: Moneyweb, BusinessTech, Daily Investor, and Fin24.
