The credit ratings downgrade to junk status (sub investment grade) by Standard & Poor’s and Fitch Global Ratings is having far reaching effects on South Africans. The depreciation of the Rand following the downgrade has affected the buying prices for international petroleum for South Africa.
According to the Automobile Association of South Africa (AA), motorists can expect to pay more for fuel in May. Petrol prices are forecast to increase by 55 cents per litre, while diesel is expected to see a rise of about 39 cents per litre. Illuminating paraffin is estimated to increase by 41 cents per litre.
“The loss of confidence by investors, and the sovereign ratings downgrades by ratings agencies Fitch and S&P, have led to the Rand slipping heavily against the US dollar, down from around R12.35 at the beginning of the month to its current position of around R13.40,” explained the AA.
However, the weakened Rand is not the only contributing factor. The Rand has contributed to three-quarters of the expected fuel price hike, according to the AA, while hikes in international petroleum prices account for the rest.
“However, it is a long time till month end, and there is no certainty that the impact of the downgrades has been fully priced into the economy. The picture for May could be substantially different.
“If the Rand had stayed on its previous upward course against the US dollar, it may have been strong enough to overcome the significant increases in international petroleum prices, resulting in a smaller increase in May,” added the AA.