Kganyago keeps a weather eye on rand
THE SA Reserve Bank was ready to adjust monetary policy if a slump in the rand filtered through to the economy and fuelled inflation, governor Lesetja Kganyago said.
“What is of concern is whether the depreciation of the rand feeds itself into domestic inflation,” Kganyago said on Wednesday in Lima, Peru.
“If we think that it would feed itself into second-round effects, then we would be left with no choice: policy would have to adjust to deal with the consequences,” he said.
While inflation of 4.6 percent in August was within the 3 percent to 6 percent target range, the bank predicted the rate would break the upper limit next year. That will create a policy dilemma in an economy showing signs of a slowdown.
Kganyago raised the benchmark interest rate twice since July last year to 6 percent, then left it unchanged in September to support economic growth.
The biggest risk to inflation is coming from the rand, which slumped 14 percent against the dollar this year to reach a record low of R14.1599 on September 29.
Former Reserve Bank governor Tito Mboweni said in London on Wednesday that the bank was in a policy “bind” and would need to raise interest rates at some point despite a slowing economy.
“They’ve been boxed in very badly,” Mboweni said. “They will have to bite the bullet at some stage.”
Kganyago said an environment of global economic uncertainties before the first interest-rate increase by the US Federal Reserve since 2006 would not end after the Fed made a move.
At subsequent meetings of the US Federal Open Market Committee (FOMC), “everyone will keep asking, will they continue on it or will they hold”, he said.
“There will always be another FOMC meeting and another FOMC meeting.”
South African exporters were not seeing the full gains of a weaker rand because of slower global demand, he said. “Theoretically it should benefit exporters, but for exporters to take advantage of that, there has to be global demand.”
The country’s current account deficit might “creep up a little bit”, but “nowhere close” to the high levels reached in the past. The gap on the current account, the broadest measure of trade in goods and services, narrowed to 3.1 percent of gross domestic product in the three months to June. – Bloomberg