Positive turn for South Africa, but it’s still not looking good
The rand has seen a stronger turn in trade at the start of the new week, but it’s nowhere near enough to flip the fortunes in fuel recoveries heading to November.
This is according to Investec Chief Economist, Annabel Bishop, who noted the rand’s recovery against the dollar to around R16.50/$, from R16.70/$ last week.
The issue, she said, is that even though the rand has taken a positive turn, it is still far off from the R16.00/$ levels in early September. It is even further from the R15.70/$ levels it hit before the US-Iran War.
Because of this, the current exchange rate is contributing to a significant under-recovery in fuel prices, compounding the negative balance from global oil prices.
The oil price remains above $100 a barrel, hitting $106 a barrel on Monday (12 October). This is contributing to a R2.50 under-recovery in petrol prices.
The rand/dollar exchange—which had been offsetting the under-recovery in recent months—is now pushing prices even deeper into the red, adding 50cpl to the negatives.
“The recent rand appreciation has reduced the potential size of the fuel hikes building,” Bishop said.
“However, the gains in the domestic currency against the US dollar over the past week have not been enough to counterbalance elevated international fuel prices.”
Positively, the under-recovery building for November has fallen from R4.60 per litre at the start of the month.
Unfortunately, it has only dropped to around R3 per litre, meaning another significant price hike is still on the way, ready to push prices to yet another record high.
Bishop said that the fuel price changes are key for South Africa’s inflation and interest rate outlook, as well as economic growth.
Further, it is placing consumers under immense pressure, with fuel costs on track to now double this year.
Pain ahead
There is little room for the government to aid motorists, with Bishop noting that the country’s 2026/27 tax revenue overrun is likely to be smaller than previously expected.
While Parliament is currently processing a bill to aid fuel costs to the tune of R10 billion—with demands from lawmakers that this be in place before December—it is not yet clear where this funding will go.
Finance Minister Enoch Godongwana has made it clear that additional fuel relief would come at a high cost to the budget—something the country can ill afford.
Godongwana is set to deliver his Medium Term Budget Policy Statement on 21 October.
Bishop said substantial additional revenue creeps in during budget updates, and fiscal figures could disappoint if spending continues to balloon.
This makes futher fuel price support highly unlikely.
“Little government support for rising fuel prices is expected on a constrained budget, with fiscal consolidation still a priority,” Bishop said.
There appears to be no relief in sight.
Bishop said that the global oil shock has worsened again, with inventories depleted, tanker costs high, and fuel exports constrained.
“Transport costs for tankers are at record highs, while other logistics costs such as insurance have climbed steeply too,” she said.
“High logistics costs have driven global fuel costs higher, along with geopolitical tensions and inflation expectations, and these higher fuel transport costs will also aid in keeping prices elevated.”
The economist said the logistical constraints in energy markets are expected to persist for some time, with elevated oil and petroleum product prices now expected to last at least into next year.
This will increase import costs for South Africa and constrain its trade balance and growth—all of which will be felt by consumers and the economy at large.
“CPI inflation will likely be above 5.0% y/y when it enters the dry period from the El Nino, and the double whammy (from fuel) could see higher interest rates,” she said.
Bloomberg consensus has revised South Africa’s GDP forecast down for the year, to 1.1% y/y from 1.2% y/y.
Markets expect another interest rate hike in South Africa, either in November or January 2027, with interest rate cuts fading from the forecast.
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