Rand rally to bring welcome petrol price relief

Feb 17 2016 13:37
Fadia Salie

Cape Town - Currency strength has paved the way for a "welcome drop" in petrol prices in March, according to the Automobile Association.

Commenting on the unaudited mid-month fuel price data released by the Central Energy Fund, the AA said the rand's recouping of some of its losses against the dollar is allowing South Africans to benefit from lower international petroleum prices, and provides some cushioning against any upward movement.

According to the AA the current indicators show a drop of between 56 cents and 59c a litre, with about 11c attributable to rand gains.

Although the international price of diesel climbed slightly in the first half of February, the exchange rate offset some of diesel's gains, the AA said.

"Without the stronger exchange rate, the increase would have been 17c a litre instead of the 7c a litre currently predicted."

The AA expects illuminating paraffin to rise by 10c/litre, "which would have been 20c without the rand's recent gains".

"It would benefit the economy considerably if the current environment of low petroleum prices and a flatter exchange rate were to continue," the AA said.

The rand, however, lost some its value against the greenback on Wednesday following worse-than-expected annual consumer inflation data, before regaining all of the day's losses and some more later in the trading session. By 12:20 the rand was trading 0.28% firmer at R15.75 from Tuesday's close and from R15.87 earlier in the session on Wednesday.

Statistics SA announced on Wednesday that the headline consumer price inflation (for all urban areas) annual inflation rate in January 2016 was 6.2%.

This rate was a full percentage point higher than the corresponding annual rate of 5.2% in December 2015.

On average, prices went up by 0.8% between December 2015 and January 2016.

Economists partly blamed the weaker currency for CPI breaching the upper limit of the South African Reserve Bank's (Sarb's) target range of between 3% and 6%.

The consensus forecast for headline CPI, which includes the volatile food and energy components, was for an increase to 6.0% in January.

Kirk Swart of Overberg Asset Management told Fin24 on Wednesday that the numbers clearly show the effects of the weakening exchange rate and the drought coming through.

"The Reserve Bank was preemptive in their rate hike by increasing the repo rate in the previous MPC meeting. The rate hike will, in theory, combat inflation via the transmission mechanism by slowing down economic growth.

"However, a lot of the inflation is not due to a growing economy. The inflation is due to the weak exchange rate and drought."

Peter Attard Montalto from Nomura said the surge in inflation shows the "risk premia coming into prices from the political events of December and faster pass through now occurring".

Swart however said that most of the currency weakness is due to economic factors nationally and an emerging market selloff internationally. Political events did contribute to the weaker currency, but only marginally.

The rand has been trading in a fairly narrow band since the end of January, and has lost only 1.82% of its value against the dollar since the start of the year. Last year the rand lost almost 30% of its value against the greenback after taking a beating in December followng the surprise axing of finance minister Nhlanhla Nene.

The appointment of Pravin Gordhan as replacement for backbencher Des van Rooyen four days later has since brought some calm to the markets.

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aa  |  sa economy  |  petrol price  |  nene fired



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