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Picture: ISTOCK
Picture: ISTOCK

SA’s import bill could surge R110bn in 2023 due to a weaker rand, Genera Capital investment specialist Adrian Saville has estimated, as the pressure mounts on the Reserve Bank before its monetary policy committee (MPC) meeting next week.

The drop in the value of the currency since the most recent MPC meeting in late March has raised speculation that the Bank could hike interest rates another 50 basis points as it seeks to manage the fallout of a weaker currency on inflation and the inflation outlook. But tightening policy in a deteriorating economic environment is sure to trigger a backlash in many quarters, especially as the repurchase rate is now at a level deemed to be restrictive.

Policymakers could be pre-emptive in their decision-making to avoid inflation expectations becoming entrenched at much higher levels than the 4.5% midpoint of the target range.

Saville said SA’s total import bill could rise to R2.34-trillion from R2.23-trillion in 2022 if the rand averaged at R19.20/$, from R18.20/$. The scenario could add 1.8% to consumer prices, he said.

“The Bank’s mandate first and foremost is to defend the purchasing power of the rand by managing inflation. It might have to hike rates by 50 basis points to make the rand attractive,” he told Business Day on Tuesday.

The country’s imports accounted for 33% of GDP in 2022.

“There is more uncertainty than ever before. Just like the central bank, we operate in a data dependent environment. We think the Bank could hike rates by 50 basis points next week given that the balance of inflation risks is tiled on the upside,” said Absa economist Peter Worthington. “But a 25 basis-point increase is also possible, especially if the rand recovered further from its recent sharp sell-off.”

Foreign investors sold a net R9bn worth of local bonds over the past week, pushing the rand to record highs of R19.50/$ as a diplomatic row between the US and SA over Russia dented sentiment. It has since recovered to R19.03/$ by Tuesday evening as the two countries scrambled to manage the fallout. 

The tussle came while the rand was already on its knees after an energy crunch undermined growth prospects, thus throwing government revenue projections into doubt.

The unemployment rate increased to 32.9% in the first quarter, from 32.7% in the preceding one, suggesting that businesses were increasingly taking strain, which bodes ill for the government tax base. The lower tax base implies the government might to borrow more money to fund public spending, which will increase public debt.

mahlangua@businesslive.co.za

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