News in South Africa 26th May:

1. Rand plunged to new record low:

The rand crashed to a new record low overnight, reaching R19.8279/$ on Thursday night. The currency has now lost almost 26% of its value over the past year. In the past two weeks alone, since the US accusation that Russia received arms in South Africa, it has plunged 8%.

Rand plunged to new record low
Photo by Ketut Subiyanto

On Thursday, the currency was hit by another shock sell-off following the SA Reserve Bank’s monetary policy committee meeting.

While the repo rate hike of 50 basis points to 8.25% was largely expected, market analysts are divided about why the currency started bleeding.

Some commentators blame the slump on Reserve Bank Governor Lesetja Kganyago’s less hawkish tone about future rate hikes.

Kganyago said that the bank had been saying for some time that it was tightening monetary policy but that it had not yet reached “restrictive territory”.

“Now, we have just reached restrictive territory. We have got to see the effects of this policy stance and what it means.” This was interpreted as a signal that the bank is hoping not to raise rates again.

Higher interest rates make rand assets more attractive to international investors. But other countries are still planning to hike rates, which would make the rand less appealing.

However, others believe that the sharp rand slump was triggered by concerns about the economic fall-out of another aggressive hike. South Africa may already be in recession as load shedding devastates the country.

“The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake,” said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank, told Bloomberg. “The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects.”

2. Outcry over interest rate hike:

Livid workers affiliated with various trade unions staged a picket outside the SA Reserve Bank’s offices in Pretoria ahead of the 50-point basis interest rate hike on Thursday.  

SA Federation of Trade Unions (SAFTU) along with the General Industries Workers Union of SA (GIWUSA) took to the streets to oppose the Reserve Bank’s adjustments of interest rates to combat inflation. 

The Reserve Bank monetary policy committee announced a 50-point basis interest rate hike, raising the interest rate to 8.25%. 

Impact on poor and working class

Vavi conceded that SAFTU was protesting a decision that had already been taken, but argued that many people stood to lose their jobs and houses.  

“Every time they increase the interest rate, they are sentencing thousands if not millions of workers to poverty.” 

Meanwhile, president of Giwusa Mametlwe Sebei told reporters that the constant repo rate increases were aggravating the cost-of-living crisis. 

He said: “Prices of food and non-alcoholic beverages have increased by 14%, from 13.6% in February, in part due to higher-priced imports but also because of the additional costs of electricity and load shedding for producers and retailers.”  

Sebei added that the interest rate hike was heaping financial distress on 26 million people, who are active in the economy’s formal credit market, and many millions more who must resort to loan sharks to survive.

“The rate hikes have also destroyed countless jobs, small businesses and investments. Many businesses are falling into insolvency and are retrenching workers due to the punitive costs of debt service,” said Sebei.  

National committee member of the Workers and Socialist Party Ndumiso Ncube said that the party participated in the picket to send a strong message that the working class rejected the interest rate hike. 

3. Reserve Bank increases growth outlook:

The South African Reserve Bank (SARB) has increased South Africa’s GDP growth outlook for 2023 to 0.3% from its previous forecast of 0.2% in March. 

This was revealed in the Monetary Policy Committee Statement delivered by Reserve Bank governor Lesetja Kganyago on Thursday. 

The SARB’s global growth outlook is much more positive, with the Bank expecting global growth of 2.4% in 2023 and 2.7% in 2024. 

Kganyago cautioned that global markets remain highly volatile; thus, the forecasts will likely change. 

The global growth outlook is clouded by persistently high inflation and pockets of financial instability. 

However, broadly economic conditions are looking more positive globally, according to the governor. 

“South Africa’s economic conditions, however, remain poor”, with elevated stages of load-shedding and logistical inefficiencies hampering the country’s economic performance. 

Load-shedding alone is estimated to have reduced South Africa’s potential GDP growth in 2023 by 2%. 

The Reserve Bank expects the South African economy to become more resilient to the effects of load-shedding as businesses procure alternative power sources.

“An improvement in logistics and sustained reduction in load-shedding, or energy supply from alternative sources, would significantly raise growth”. 

4. NHI approved:

The Portfolio Committee on Health has decided to go ahead with the National Health Insurance Bill (NHI) despite pushback and growing concern over some of its provisions.

According to Parliament, the committee considered and adopted the NHI bill on Thursday (25 May) after the Parliamentary Legal Advisor presented both the A-List and B-Bill to the committee.

“The A-List essentially listed all the amendments as agreed to by the committee. The B-Bill reflected all the proposed amendments and comments forming part of the new NHI Bill,” Parliament said.

On Friday (26 May), the committee will consider and adopt the NHI Bill committee report.

In broad terms, the NHI Bill aims to provide universal access to healthcare in South Africa – as enshrined in the Constitution as a fundamental right. It seeks to achieve this by ensuring that:

  • No one is deprived of the right to healthcare because of their socioeconomic status;
  • One public health fund is created with adequate resources to plan for and effectively meet the health needs of the entire population, not just for a selected few.
  • The ultimate goal is to achieve Universal Health Coverage (UHC)

Funded through general taxes and contributions from people earning above a set amount, the NHI fund will pool money for both private and public healthcare providers – ultimately making it no longer a requirement for South Africans to contribute directly to a medical health scheme.

5. Joburg to lower load shedding:

Johannesburg will exclude key customers, essential services and some businesses from power cuts to reduce the fallout and attract investment.

The exemptions will start gradually from early next month, City Power said in a statement on Thursday. The changes come as it considers a plan to cut daily outages for residents by half.

“Already most large power users and key business customers are excluded from load shedding through the load curtailment agreements with the companies,” it said, referring to the local term for outages.

“Other businesses, especially those in industrial areas and employ many people, will be gradually excluded owing to the reconfiguration of the network and other processes, including the rolling out of energy techniques.”

All information sourced from articles posted by: Fin24, City Press, DailyInvestor, BusinessTech and Moneyweb.

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