According to the Medium Term Budget Policy Statement (MTBPS), released today in Parliament by Finance Minister Pravin Gordhan, the rand has remained volatile as global risk appetite waxes and wanes in response to developments in major economies. The MTBPS states that sentiment towards the rand has been negatively affected by the deterioration of the current account and wildcat strikes. This, in turn, leads to inflationary pressure, straining household and individuals’ spending capacity. South Africa’s currency exchange value depreciated from an average of R8.01 to the US dollar in January, to R8.62 in October. The nominal trade-weighted rand was, on average, 10% weaker in the first three quarters of 2012, compared with the same period a year ago. In real terms, the rand was 7% weaker in the first half of 2012 compared to the same period in 2011. The weaker rand has so far provided little support for manufacturing export growth, which remains subdued in the present economic environment. The MTBPS states that sentiment towards the rand has been negatively affected.
The MTBPS states that sentiment towards the rand has been negatively affected
Inflation Consumer price inflation (CPI) has averaged 5.7% in the year to August. According to Treasury, core inflationary pressures remain contained and headline inflation is expected to stay within the 3 to 6% inflation target band throughout the forecast period. Rising international food prices and higher petrol costs, combined with a weaker exchange rate, are expected to place upward pressure on consumer prices during the second half of 2012. Food-price inflation is expected to average 9 % in 2013, up from 5.1% in August 2012. Administered prices have risen by 10.3% over the past year. Electricity prices are expected to continue rising in line with the move to cost-reflective tariffs. Low and stable inflation is a key determinant of economic competitiveness, with particular importance for preserving the purchasing power of poor households. South Africa adopted inflation targeting in 2000. Since then, average levels of inflation and real interest rates have declined, growth in real GDP and fixed investment have been higher and less volatile, and inflation expectations have been lower and more stable than before.
– By Makalang Gift Mphokane
