Repo Rate Increased to 3.75%
This week the Reserve Bank Monetary Policy Committee (MPC) decided to raise the repo rate by 25 basis points from 3.5% to 3.75%. The Reserve Bank governor, Mr. Lesetja Kganyago, explained that the increase comes against a backdrop of higher inflation and local issues negatively impacting the long-term performance of the economy (namely protests and load shedding). The main reason for this increase is to try and moderate inflation in South Africa. It is the mandate of the Reserve Bank to stabilize the economy and the steps taken to fall within this mandate. With global markets remaining increasingly uncertain and commodity prices rising, the local economy has been under serious pressure. How does this affect you, the ordinary citizen? Well, the interest rates on your bond, mortgage, loans, and other lines of credit will increase. It is now more expensive to use credit which is in line with the MPC’s desired effect of lowering consumer spending. This is the desired outcome because lower consumer spending helps moderate inflation as demand for goods decreases. Decreased demand causes suppliers to theoretically lower prices or at the very least avoid increasing prices to still be competitive on the market which moderates inflation.
Digital Currencies Worldwide
Many developments have been reported in the digital currencies space. MasterCard Inc has expanded its cryptocurrency services with wallets, loyalty rewards for users in crypto and more. This has been in response to the increasing use of cryptocurrencies worldwide. Closer to home, reports are being made on the potential move by the Zimbabwean government towards making cryptocurrency its legal tender. This would follow in the footsteps of El Salvador who introduced Bitcoin as legal tender in September 2021. Cryptocurrency adoption in Africa grew 1200% between July 2020 and June 2021, making it the fastest adoption rate in the world. However, in terms of overall values traded, the continent is still playing catch-up to other regions. Whilst the move may have many supporters locally as citizens have more faith in a less centralized form of currency the government is still assessing the risks. It is still difficult for the government to regulate cryptocurrency. The main fears cited by authorities are money laundering and the illicit flow of funds across borders. Tax also becomes trickier to administer as a result of the lack of regulation and it will be difficult for government to make money via the issue of bonds as people will keep their money in crypto as opposed to fiat.
COP26, the move from fossil fuels, and continuing energy crisis in South Africa
In the aftermath of COP26, countries are making changes towards the implementation of cleaner energies. South Africa is pushing to be a global leader in this transition to cleaner energy as per the President and Minister of Energy’s statements. South Africa’s electricity is mainly sourced from coal which accounts for 80% of the power generated. The country is set to receive $8.5 billion to help end its reliance on coal. This money is in the form of concessional loans and grants from the EU, Germany, England, and other countries. Whilst all this is happening, load shedding has returned after its short break. The sentiment across the nation is that load shedding and energy problems are the new norm in South Africa. The load shedding has far-reaching negative effects on the economy of the nation and people are demanding immediate resolution of this problem. Eskom reported that 5 more generating units collapsed resulting in 16 822 megawatts of capacity being taken offline. The Minister of Mineral Resources Gwede Mantashe in response to all of this spoke at the African Energy Week conference calling for African Nations to form a united front to resist the global pressure to rapidly abandon fossil fuels. His reasoning is that Africa is a resource-rich continent which happens to also contributes the least pollution. "We've noticed with interest that when Britain, China, India, and Australia ran into [an] energy crisis, they all appealed to coal generation to give them more energy. You will notice that, but when they talk to us they say stop using coal immediately. That is the issue that we must discuss without fear." Interesting times lie ahead of us!
China and the U.S take action against the Global Oil Crisis
This week, Chinese President Xi Jinping and US President Joe Biden reached a consensus on the “importance of taking measures to address the global energy crisis.” The agreement may see the two nations release some of their oil reserves into the global market to ease the price of oil, given the surge in demand.
According to oil markets experts, the expected reserves range between 20 million and 30 million barrels overall. However, it is important to note that this is but a temporary measure. A more stable and continuous supply is required to stabilize oil prices in the long-run, ceteris paribus. This would require cooperation and coordination between all Oil Producing and Exporting Countries (OPEC) for increased production. It can be argued that the call for increased oil production could not have come at a more precarious time as countries are investing efforts to fight the climate crisis. Thus, it remains to be seen how the OPEC nations will countermand the effect of increased oil production to meet their climate change objectives.