Interest rate on hold despite spooked rand

The South African Reserve Bank met widespread expectations and decided to hold interest rates, although it expressed concern over high inflation and rand volatility.

The currency took a dive this week after media reports warned that Minister of Finance Pravin Gordhan faced imminent arrest and could be charged for his role in the establishment of a so-called rogue unit at the South African Revenue Service.

The currency weakened further after a statement was put out by treasury on Tuesday evening in which Gordhan expressed distress over the reports. He said, although no one is above the law, equally, no one should be subjected to the manipulation of the law and agencies for ulte- rior motives. He accused individuals in government agencies of conspiring to intimidate and harass him.

The rand weakened from R15.40 to the dollar at the weekend to R15.90 on Thursday morning.

The governor of the Reserve Bank, Lesetja Kganyago, said it was clear that the uncertainty was not good for the currency. He said the country’s low growth outlook and concerns about a possible ratings downgrade had also affected the exchange rate.

“The monetary policy committee [MPC of the bank] felt that there is some room to pause in this tightening cycle and accordingly decided to keep the repurchase rate unchanged for now at 7% per annum,” he said.

The committee remains concerned about the inflation outlook and the extended breaching of the infla- tion target of between 3% and 6%. Inflation has moderated to 6.2%, but international oil prices are rising and food price pressures continue.

The bank’s measure of core inflation, which excludes food, fuel and electricity, was 5.5% and was anticipated to reach 5.9% for 2016.

At an MPC meeting in mid-March, the repurchase rate was raised by 25 basis points to 7%.