Rand Report: The Roast of the South African economy, hosted by Eskom. Image: Adobe Stock

Rand Report:The Roast of the South African economy, hosted by Eskom

The rand lost ground against all major currencies, as the severity of local power cuts continues to intensify


Rand Report: The Roast of the South African economy, hosted by Eskom. Image: Adobe Stock

The South African rand has extended its decline, as the severity of local power cuts continues to intensify. A potential grey listing looms over the nation, and even the most risk-taking investors are turning their noses up at South Africa’s economic dilemma.

South Africa’s central crisis continues to be power supply, and Eskom serves as a thorn in the side of the country. The faltering power utility has ramped up national load shedding to stage 6 and has warned of potential changes to the grid system’s operation code. The current schedule runs up to stage 8, a scenario in which South Africans would be without power for 50% of the day. However, this does not mean that Eskom will not extend power cuts past this point.

Eskom has downplayed the possibility of reaching stage 8 load shedding in the short term, despite the abundance of breakdowns at its power centres. It is without a doubt that the implementation of stage 8 load shedding will have a severe systemic impact on the South African economy, through the widespread disruption to business operations.

The failing state-run enterprise has also indicated that the possibility of implementing a new stage 9 load shedding is “very low”, a statement which does not provide much assurance to the South African population. On the bright side, Eskom has continued to reiterate that they are doing everything in its power to prevent load shedding that exceeds stage 8.

The government’s inability to solve the power crisis is having an adverse impact on growth prospects, leading foreign investors to refrain from injecting much-needed capital into the local ecosystem.

Consequently, the rand lost ground against all major currencies ahead of the budget speech this week. The USD/ZAR pair moved 0.69% higher, from an open of R17.95. After sailing through the R18.00 resistance level and reaching a high of R18.29, the USD/ZAR pair ended the weekly trade around the R18.05 mark.

The GBP/ZAR pair made a similar move and appreciated by 0.62% during the week. After kicking off at R21.64 on Monday and topping out at R21.90, the pair ended at R21.71 on Friday.

The EUR/ZAR pair experienced the most pronounced move, rising by 0.93%. After opening at R19.15 and climbing to R19.47, the pair closed at R19.29.

For local data, South Africa’s inflation rate came in at 6.9% in January, down from 7.2% in the prior month. This figure was in line with expectations, as price pressure continues to revert towards a more sustainable baseline. Retail sales data were also released last week, indicating that consumer spending fell by 0.6% in December, exceeding the anticipated decline.

For global data, US inflation came in at 6.4% for January, down from 6.5% in the prior period. Although this decline indicates further easing of price pressure, the drop was less than the anticipated decline towards 6.2%. Additionally, producer price index data came in at 0.7% in January, exceeding the forecasted 0.4% figure. After the 0.2% decline in December, indicating that price pressure remains somewhat sustained.

The UK had similar economic data. The UK inflation rate came in at an elevated 10.1%. Despite the concerningly high price pressure, inflation declined further than expected from a previous reading of 10.5%. Unemployment remained steady, at 3.7%, in line with market expectations. Retail sales data proved to be positive, with consumer spending rising by 0.5% despite an expected decline of 0.3%.

Upcoming Market Events

Tuesday 21 February

AUD: RBA Meeting Minutes

Wednesday 22 February

USD: FOMC meeting minutes

ZAR: 2023 budget speech

Thursday 23 February

EUR: Inflation rate (January)

ZAR: Producer price index (January)

Friday 24 February

USD: Personal income (January)

USD: Personal spending (January)

GBP: GfK consumer confidence index

Get our Daily Rand Report delivered straight to your inbox every weekday to keep on top of everything happening with the ZAR. 

Check out the Sable International Currency Zone to get the latest live exchange rates and easily transfer your money into or out of South Africa.

ALSO READ: Weekly Rand Report: Lights out for the Rand