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Rand on the ropes as power crisis, US rate hikes deliver double blow

Rand on the ropes as power crisis, US rate hikes deliver double blow
Photo: Jason Alden / Bloomberg via Getty Images

The scale of rotational power cuts and the pace of US interest rate hikes are key factors behind the rand’s slump, which has taken it to three-year lows above R18.80/$ and within striking distance of its record trough above R19/$.

The rand’s latest battering comes amid growing fears that the power crisis is set to worsen, with talk of a grid collapse and a total blackout becoming more frequent among the chattering classes. 

“South African media is rife with references to a ‘total blackout’ – a total collapse of the national energy grid. This anxiety is also reflected in the rand exchange rate, with the South African unit being one of the worst-performing emerging market currencies so far this year,” Jacques Nel, head of Africa Macro at Oxford Economics Africa, said in a commentary this week. 

There is simply no confidence left on this front, which is not a solid foundation for a currency. 

The rand on Wednesday fell to R18.875/$, its lowest level against the greenback since May 2020 when the economy was collapsing under the weight of Covid-19 restrictions. Early on Thursday it was hovering around R18.86/$, which is just a stroll away from its all-time low of R19.03/$, which was reached in April 2020. 

Rolling blackouts have slashed economic growth while simultaneously fuelling inflation because of the additional costs businesses need to rely on to keep their operations liquid. Forecasts for South African economic growth this year vary from 0.1% to 0.9% and are likely to be revised lower, while the economy may well be stuck in a recession. 

Against this backdrop, US interest rate hikes have exceeded South Africa’s, taking the shine off rand assets and forcing the Reserve Bank’s hand to keep pulling the trigger. It surprised the markets in March with a 50-basis point hike. 

“The Sarb could surprise again with another 50-basis point hike on 25th May, but this would still leave South Africa’s interest rate hikes (4.75% if it hikes this month by 50 basis points) below that of the US which has hiked by a full 5.00% in the current rate hike cycle,” Investec chief economist Annabel Bishop said in a note. 

The rand’s woes will also fuel inflation further, adding to a cost-of-living crisis underlined by food inflation which was running at 14% in the year to March.  DM/BM

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  • Jeremy Collins says:

    Our economy is tanking in real time. At which point will we ALL become South Africans and take to the streets?

  • Pet Bug says:

    All it took was for diplomats to take their gloves off to wholeheartedly crash through the R19/$ mark.

  • Charles R says:

    I do not understand why the USA have an issue of the SA Governments support of Russia. What did they expect was going to happen when they helped these terrorists took over in 94.

  • Jon Quirk says:

    The US have come out openly and accused South Africa of supplying arms to Russia; Ramaphosa has said that he will look into it and has appointed a judge. We all know that judicial reports in our country take years rather than months.

    Ramaphosa is supposedly the President, yet he says “he does not know”.

    It is clear to a blind man that our armed forces, police and “securocracy”, in the July 2021 insurrection were under the control of RET forces hostile to the Ramaphosa regime, and it is clear today that this same “misalignment”exists today, and that, be known, or unbeknown to our President, forces aligned to the RET forces have again more than cosied up to their nuclear Russian pals.

    It is time Ramaphosa got a grip and started leading; unless he does, our country is going to go into an economic decline of unprecedented scale anywhere in the World.

    • Johann Olivier says:

      Appointed a judge? Uproarious guffaws! He thinks this ANC stalling technique will work with the US or Europe? Small wonder he uses his couch as a bank. “Well, the sides are thick – as are the pillows; has to be a safe as a vault!”

  • Mark Cowell says:

    Surely the Tourist Ministry should be running a promotion as to how cheap SA currently is for overseas visitors/tourists thanks to the compete F*** up by the ANC ?

  • Phillipa Lycett says:

    A country mired in “independent Enquiries”, on every matter where our “powers” do not want to admit culpability.

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