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South African electricity rate hike to hinge on Eskom tariff

South African electricity rate hike to hinge on Eskom tariff

CAPE TOWN: The electricity tariff hike the National Energy Regulator of SA (Nersa) grants Eskom next month will likely determine how soon the South African Reserve Bank increases rates this year. On Thursday, in keeping the repo rate on hold at 5.75%, Reserve Bank Governor Lesetja Kganyago warned that the “unchanged stance cannot be maintained indefinitely”.

This is the second time the Bank warned there was limited scope for leaving rates unchanged. Eskom posed two major risks  to inflation from the tariff hike and to economic growth through sustained power outages. f electricity tariffs rose sharply, it would cause the Bank to hike rates as the inflation outlook would accelerate outside the 3%-6% target band for a sustained period. Nersa will decide next month whether to grant Eskom an additional 12.6% hike on top of the 12.67% already granted for the 2015-16 year.

“The main risks to the outlook remain electricity tariff increases, the exchange rate and wage settlements. Significant additional electricity tariff increases are likely to cause inflation to diverge significantly from the target range for a more extended period than our baseline forecast suggests,” Mr Kganyago said. In the last meeting, the concern was over rising oil prices, which had since stabilised. Four of the Bank’s six monetary policy committee (MPC) members favoured keeping rates unchanged and two backed an increase of 25 basis points.