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South Africa Holds Rate as Uncertainty Raises Chance of Increase



South African central bank
  • South Africa Holds Rate as Uncertainty Raises Chance of Increase

South Africa’s central bank held its key rate and forecast more increases over the next two years as uncertainty about its credit rating and the outcome of the ruling party’s leadership race have raised risks.

The repurchase rate was kept at 6.75 percent in a unanimous decision that matched estimates by all 19 economists surveyed by Bloomberg.

The Monetary Policy Committee cut the rate for the first time in five years in July to support an economy that entered its second recession in almost a decade in the first quarter. Inflation has been inside the central bank’s target range for seven months, but the rand, which has depreciated on concerns about higher public debt and political turbulence before the African National Congress’s leadership vote, has countered the slowdown.

Investors are also bracing for a possible downgrade of the government’s local-currency credit rating to junk on Friday, when Moody’s Investors Service and S&P Global Ratings are scheduled to publish reviews. That may cause a selloff of $7 billion of rand bonds, according to Citigroup Inc., and would raise borrowing costs for the nation that’s selling more debt to plug a widening budget gap.

“The less favorable path of fiscal consolidation could potentially reduce the scope for further monetary policy accommodation,” Governor Lesetja Kganyago told reporters Thursday in the capital, Pretoria. The central bank’s projection model implies three interest-rate increases of 25 basis points each by the end of 2019, compared with one increase previously, he said. This doesn’t imply an unconditional commitment to this path, he added.

The bank expects inflation, which slowed to 4.8 percent in October, to stay inside the target range of 3 percent to 6 percent until at least the end of 2019. It kept the forecast for average price growth this year at 5.3 percent, and increased the prediction for 2018 to 5.2 percent, Kganyago said.

“Tomorrow’s ratings review is crucial — it will have a big impact if we do get downgraded, in terms of the sell-off in the currency and the bond market and higher inflation next year,” Maarten Ackerman, the chief economist at Citadel Investment Services, said by phone. “They are more likely to sit still or start hiking as a result of those developments.”

The rand has lost 5.9 percent against the dollar in the second half, the worst-performing major currency after New Zealand’s in the period. This year, the rand is also the most volatile of all currencies tracked by Bloomberg. It weakened 0.5 percent to 13.8878 per dollar by 4:30 p.m. in Johannesburg. Yields on rand-denominated government bonds due December 2026 fell 5 basis point to 9.34 percent.

Policy uncertainty and political turmoil have stalled economic reforms in Africa’s most-industrialized economy, which exited the recession in the second quarter. President Jacob Zuma made changes to his cabinet twice this year, removing widely respected Pravin Gordhan as finance minister in March and triggering two downgrades to junk for the nation’s foreign debt.

The economy expanded 2.5 percent in the second quarter. The MPC raised its growth forecast for 2017 to 0.7 percent. It sees gross domestic product expanding 1.2 percent next year and 1.5 percent in 2019.

Inflation expectations, as measured by the five-year breakeven rate, have climbed 42 basis points since the Sept. 21 MPC announcement. Forward-rate agreements starting in 12 months, used to speculate on borrowing costs over the period, show investors are pricing almost a percentage point of rate increases by the end of next year.

The bank increased the crude-price assumptions in its model for next year and 2019.

“The chances for a rate cut are diminishing based on the weaker rand and the Reserve Bank’s oil-price expectations,” Elize Kruger, an economist at NKC African Economics, said by phone.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend




Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.


  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return



Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather




Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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