Ayanda Shezi

Economics Correspondent

WITH international oil prices coming off their recent record highs, a stronger rand would become more important in helping to keep inflation in check, and prevent successive interest rate hikes, economists said yesterday.

A strong rand has in the past helped to offset the negative effect of high imported inflation, and if it weakens substantially from current levels, it could stoke inflationary pressures, as SA is a net oil importer.

"A weaker rand will increase the overall import bill and put further upward pressure on inflation," Absa economist Monale Ratsoma said.

The transport component within CPIX (consumer price index excluding mortgage

costs) has a weighting of 15,3% in the consumer’s basket of goods and services, and is an indicator of how oil prices are affecting the consumer at the petrol pump.

Consumer inflation data for last month, due out today, is expected to be marginally lower than September’s figure of 4,7% year on year, largely on the back of a slowdown in oil prices.

Inflation figures for this month and next could be even better, economists said, as fuel prices declined 31c/l at the beginning of this month, and are predicted to decline by the same amount at the beginning of next month.

Ratsoma said the outlook for the rand remained bearish in the short term:

"The market is still driven to a large extent by monetary policy direction, which at this stage still favours the dollar.

"Until the US Federal Reserve signals the end of its tightening cycle, bias will still remain for the dollar to strengthen."

The rand has strengthened in the past week, as precious metals prices rose to highs of several years, and on expectation that the European Central Bank may raise rates when it meets early next month.

The euro is the unit of SA’s largest trading partner, the euro zone, and carries a weighting of 36% in the Reserve Bank’s trade- weighted index.

"This link generally suggests that the rand shadows movements in the European unit," Brait economist Colen Garrow said.

Reserve Bank governor Tito Mboweni said earlier this week that although the inflation outlook had deteriorated moderately, inflation was expected to remain within the Bank’s target range.

"This is, among others, dependent on the future path of oil prices, and developments in the exchange rate of the rand and food prices," Mboweni said.