The 16,337 cents per litre (c/l) over-recovery in the basic petrol price on Monday adds to the pressure on the South African Reserve Bank (SARB) to cut interest rates.
If a 16 c/l cut is implemented in April, then the y/y rise in the retail petrol price would only be 0,7% compared with March’s 11,6%.
One of the major concerns that central banks had globally was the surge in the crude oil price during February on fears that America would invade Iraq.
Now that the invasion looks a near certainty with the United Nations weapons inspectors withdrawn from Iraq on Tuesday, oil prices have perversely collapsed in yet another application of the financial markets mantra “buy on the rumour, sell on the fact”.
Global crude oil and products futures prices plunged around 10% in early trade on Tuesday as dealers and funds jumped in to take profits on high prices, anticipating that war in Iraq would be quick and would not significantly disrupt oil supplies.
European benchmark Brent crude futures trading on London’s International Petroleum Exchange fell by $3,08 a barrel to hit a three-month low of $26,40.
Product prices, which have been strong recently on cold US winter weather, also collapsed.
Nymex Access heating oil fell to a low of 84,95 cents a gallon from $1,30 a gallon two weeks ago.
The decision by the European Central Bank (ECB) to cut interest rates on March 6 after cutting in December 2002 has merely confirmed the global trend of monetary policy easing in the face of global uncertainty.
The 11% m/m collapse in US housing starts in February has added to the pressure on the US Federal Reserve to cut later on Tuesday after February’s 308 000 decline in non-farm payrolls. In November last year, the US cut after a sharp fall in November non-farm payrolls. The housing market has been the single point of strength in the US economy over the past two years. In February, US retail sales fell by 1,6% m/m, the largest monthly decline since November 2001.
The last time the SARB cut was in September 2001, yet the rand is now stronger than it was then.
The pressure comes for various sectors of the economy despite SARB governor Tito Mboweni’s repeated warnings that speculation of an imminent interest rate cut is premature.
These warnings were first issued on January 16, when the rand was trading at R8,85 per dollar, but the rand reached R7,8357 on March 5, a 24-month best level.
Many economists and two-thirds of fund managers believe that since the warnings were first issued, circumstances have changed significantly for the better in terms of the proactive inflation targeting regime the SARB is supposed to follow.
“Until such time as we see inflation moving significantly in the right direction, it is premature to start speculating about any changes in interest rates,” Mboweni said on January 16.
On January 15, 2002, the SARB announced an interest rate hike of 100 basis points, even though the available inflation data at the time showed that the inflation target measure of CPIX, which was for November 2001, had just gone above the target range of 3% to 6%, by 0,3 percentage points, as it was at 6,3% y/y after having dropped from 7,7% y/y in January 2001. – I-Net Bridge