South African markets ended the week on a mixed note on Friday, as stocks edged higher but the rand continued weakening to a 22-month low before pairing gains.
The rand weakened to R16.89 against the US dollar, the lowest since September 2020, amid persistent worries about the national power grid.
The domestic currency lost nearly three percent over the trading week, having twice touched a 21-month weakest level of 16.85 to the dollar.
There is widespread concern that the current round of power cuts could have long-term effects on South Africa's economic growth.
Struggling state-owned power utility Eskom said these were set to continue over the weekend, but could be at lower stages.
The rand was also pressured by the dollar’s strength amid the US Federal Reserve's firm hawkish stance and fears of a global recession.
The Fed stated that moving to a restrictive policy stance was required to promote price stability.
Investec chief economist Annabel Bishop said these factors were impacting emerging market currencies, including the rand, and would likely push the South African central bank to further tighten its monetary policy.
“The rand also weakened on load shedding, global growth concerns and the negative effect on investor sentiment from the hawkish tone of the Fed, confirmed in its June minutes, which essentially highlighted the need to reduce economic activity significantly to contain inflation,” she said.
“With the overwhelming view from most central banks that high inflation needs to be met with a strong interest rate hike trajectory, South Africa’s Reserve Bank is likely to follow suit, hiking over 2023 as well.”
Analysts agree that South Africa’s higher-than-expected inflation data of 6.5 percent in June points to a further interest rate hike on July 21.
FNB chief economist Mamello Matikinca-Ngwenya said their expectations of headline inflation had been adjusted upwards, and they currently projected inflation to peak above eight percent and average 7.2 percent this year.
“The near-term upward adjustment to headline is driven by elevated fuel and food price pressures,” she said.
“While fuel and food cost pressures moderate next year, second-round effects from these supply-side shocks keep headline inflation sticky, threatening to be less transitory.”
The SARB last month unveiled its biggest rate increase in more than six years and signalled further rate hikes in the context of the gradual policy normalisation.
Meanwhile, ratings agency Fitch has affirmed South Africa’s long-term foreign and local currency debt ratings at three levels below sub-investment with a stable outlook.
Fitch said the government’s debt trajectory was lower than previously anticipated, while several key credit metrics had improved, despite concerns over ongoing power cuts and rising inflation.
However, stocks on the JSE regained some ground on Friday, as gains in miners, retailers and telecoms more than offset losses in tech stocks.
The JSE All Share Index closed 0.6 percent up at 68 327 points on Friday, advancing about 4.1 percent on a weekly basis.
In the US, the number of Americans filing first-time unemployment claims rose by 4000 to 235 000 in the week ended July 1.