The temporary reduction might also reduce the pressure on the SA Reserve Bank to increase interest rates more sharply.

Econometrix chief economist Azar Jammine on Thursday welcomed the reduction, adding it will reduce the inflation rate for at least two months by about 0.4% – 0.5%.

Impact on inflation, interest rates

“That is useful because it will mean the inflation rate won’t reach the upper end of the inflation target and so it might limit interest rate increases compared to what might otherwise have been the case.

“Some people have been talking about a 0.5% [percentage point] interest rate increase and the Reserve Bank may not do so at all now,” he said.

Godongwana told parliament on Thursday the government proposes to temporarily reduce the general fuel levy by R1.50 per litre from next Wednesday (April 6).

He said this will reduce the general fuel levy for petrol from R3.85 per litre to R2.35 per litre and reduce the general fuel levy for diesel from R3.70 per litre to R2.20 per litre for two months.

These amounts exclude other levies, such as the Road Accident Fund levy and the Carbon Fuel Levy.

Supporting a ‘phasing in’ of higher prices

“The intention of the temporary reduction of the general fuel levy is to support a phasing in of the fuel price increases that we are expecting in the short term,” said Godongwana.

“This will go some way in assisting South Africans to adjust to the new reality,” he said.

Automobile Association (AA) spokesperson Layton Beard said any reduction is welcome but stressed “it is going to soften the blow but not take the pain away”.

Moneyweb