Soaring petrol prices, increases in the cost of living, and stage 6 loadshedding has left South African consumers desperately hanging onto their purse strings. The South African Rand has plunged to its weakest level against the US Dollar since 2020 as the United States, the World’s largest economy, prepares to enter a technical recession.
The South African rand continues its downward spiral, nudging R17.17 against the greenback on Friday 15 July, as investors move funds into dollar-based safe-havens. This is a level last seen in September 2020 at the height of the pandemic.
Investec analyst Annabel Bishop said in a research note that the Rand was being afflicted by negative sentiment on both international and domestic events, such as Friday’s (8 July) publication of higher-than-expected U.S. payroll figures and severe power cuts in South Africa.
Adding extra concern to the South African consumer is yet another meeting of the South African Reserve Bank’s Monetary Policy Committee (MPC) on 21 July. 73% of economists polled by Independent Online predicts a 50-basis point increase, 12% predict a 25-basis point increase, with one panellist predicting a 75-basis point increase.
Four Rivers Analysts managing director Lebohang Liepollo Pheko is a stark outlier, predicting the MPC will hold the rate. She thinks it should cut the rate by 50bps or more due to growing financial pressure on consumers.
Jack Edwards, Marketing Manager of CAPEX.com, says that Pheko has a point. Consumers are severely burdened with the cost of living and fuel crisis. The MPC finds itself between a rock and a hard place. Inflation in South Africa has breached its 3% – 6% barrier, and the usual recourse to draw back inflation would be an increase in the REPO rate.
On the other hand, an increase in the REPO rate will result in consumers have less money in their pockets, while struggling to pay their current bills.
An increase of 50-basis points translates to an increase in monthly repayments of about R416 per R1million debt that a consumer owes.
For updated market news, visit https://za.capex.com/en/market-news
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