The rand was enjoying a gradual rebound in the last week – but this was reversed by Tuesday (23 April), after news of an unexpected and emergency bailout to Eskom hit the market.
“The rand was caught off guard this weekend, slipping back to levels as weak as R14.20/$, as National Treasury announced a bailout of Eskom on Friday,” said Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions.
The bailout of R5 billion was paid to Eskom in early April, according to reports, and was done so on an emergency basis to allow the crisis-hit power utility to meet its financial obligations.
It was intended to let Eskom to pay bills due at the end of March, and avoid a call on its existing guarantees after a loan expected from the China Development Bank failed to come through in time.
The news, which came over the extended long weekend for Easter, sent the rand from its sub-R14 levels of R13.93 to the dollar to R14.20, before settling at around R14.17.
On Tuesday, the currency was trading at similar levels, hitting R14.16 by 08:45.
“The rand is likely to continue its leg lower today as the Eskom bailout continues to filter through the currency market,” Botes said.
As the news of Eskom put markets on the back foot, public enterprises minister Pravin Gordhan moved to allay fears that Eskom was on the brink of collapse, saying that the government has a firm grasp of the power utility’s problems and has everything under control.
“We have the problem well under control. We understand what are the changes that need to be made. Eskom is not about to collapse.” he said.
Petrol price pressure
On top of the Eskom bailout, the rand is also facing pressure from global shifts, with emerging markets again feeling the pinch of safe haven purchases as the US/Iran oil debacle strains sentiment.
Washington announced a new plan on Monday (22 April) to impose sanctions on countries that import Iranian oil by no longer granting exemptions, and effectively withdrawing from a 2015 agreement.
This sent international oil prices to their highest levels in 2019, with the spot price of Brent crude hitting just under $75 a barrel, and WTI at $65.70.
While oil price is not directly tied to petrol prices, it does impact the international price of petroleum products, with increases filtering through the production line.
The latest data from the Central Energy Fund shows that rising international prices are currently contributing to a 65 cents per litre increase in local petrol prices for May – offset by around 15 cents per litre due to the rand/dollar exchange rate.
This puts the potential petrol price hike at 50 cents per litre in May.
However, any pressure on the currency as is currently being experienced is likely to directly impact this negatively, pushing the potential hike up.
The rand is currently trading at R14.15/$, R15.92/€ and R18.38/£ with a technical range of R14.12 to R14.26 expected for the day.