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Rand battered by load shedding, floods, lower global growth, war in Ukraine

Eskom yesterday ramped up its rotational power cuts to Stage 4 as a result of the failure of two additional generation units, pushing load shedding to remain in force until Friday morning. Photographer: Nadine Hutton, Bloomberg.

Eskom yesterday ramped up its rotational power cuts to Stage 4 as a result of the failure of two additional generation units, pushing load shedding to remain in force until Friday morning. Photographer: Nadine Hutton, Bloomberg.

Published Apr 20, 2022

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THE RAND yesterday fell to a nearly 4-week low pummelled by a warning of prolonged power cuts, supply chains disruption due to flooding, and a lower global economic outlook.

Eskom yesterday ramped up its rotational power cuts to Stage 4 as a result of the failure of two additional generation units, pushing load shedding to remain in force until Friday morning.

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The power utility warned of 37 days of load-shedding in the best-case scenario while the worst-case scenario could plunge the country to 100 days of power cuts in winter.

It is estimated that in 2022 load shedding could cost South Africa’s economy R500 million per stage per day as economic activity comes to a halt during power cuts.

Reports also suggested that Eskom spent an estimated R235 million diesel for 20 open-cycle gas turbine generators to keep the lights on during the long Easter weekend, in spite of lower demand.

Eskom’s dark outlook on energy supply rattled the markets as the rand fell by 0.35% to R14.96 to the dollar by 5pm, its lowest since March 20, amid concerns over the impact of severe power cuts and devastating floods in KwaZulu-Natal.

The government has declared a National State of Disaster due to the floods which left 443 people dead, bilions of rand in infrastructure damage, and disrupted supply chains for key products such as fuel.

Citadel Global director Bianca Botes said the rand had eased due to both global and domestic factors during the long weekend.

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Botes said uncertainty around the war in Ukraine and the prospect of faster Federal Reserve (Fed) interest rate hikes had weighed on the currency.

“The rand weakened against the dollar over the weekend to its lowest level since April 7, as Eskom warned of more power cuts this week and the heavy rainfall and flooding in KZN continued to ravage critical infrastructure, both having a negative impact on the country,” Botes said.

“Uncertainty around the war in Ukraine and the prospect of faster Fed interest rate hikes also weighed on the rand.”

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Expectations of continued tightening of monetary policy and a better economic outlook pencilled by the South African Reserve Bank (Sarb) limited further losses.

Data coming out of Statistics South Africa today is expected to show headline inflation rising from 5.7% in February to 6% in March as the war in Ukraine rages on.

However, South Africa is in a relatively strong fiscal position having profited from the rise in commodity prices caused initially by Covid-19 supply disruptions and as a consequence of the conflict in Ukraine.

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The Russia-Ukraine war, however, has not been kind to the global economic growth and has seen a number of downward revisions as the outlook has dimmed on the protracted geopolitical tension.

The IMF yesterday lowered its global growth projections to 2022 by 0.8 percentage points to 3.6% to the war in Ukraine.

The IMF said this reflected the direct impact of the war on Ukraine and sanctions on Russia, with both countries projected to experience steep contractions

It said projected inflation of 5.7% in advanced economies and 8.7% in emerging market and developing economies, 1.8 and 2.8 percentage points higher than projected last January.

However, the IMF’s economic growth forecast for South Africa remained unchanged from January’s forecast at 1.9% for 2022 and 1.4% for 2023, in line with the Sarb projections.

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