Despite obvious challenges in many areas, South Africa does possess a few circles of excellence – its Reserve Bank among the obvious examples. SARB Governor Lesetja Kganyago has been well groomed for this critical post, and the benefit of his experience has shone brightly since his appointment 11 months back. In Ankara over the weekend, Kganyago was grilled about the 8% drop in the Rand over the past month. His response confirms, not for the first time, that the SARB is being run by a leader with an extremely safe pair of hands. – Alec Hogg
by Ryan Chilcote and Onur Ant
(Bloomberg) – The South African Reserve Bank has no intention to defend the currency given the muted impact of a falling rand on inflation and the benefits it provides to Africa’s second-largest economy, Governor Lesetja Kganyago said.
The currency’s decline is a result of the Chinese slowdown and expected monetary policy normalization in the U.S., Kganyago said Saturday on the sidelines of a G-20 meeting of central bank governors and finance ministers in Turkey’s capital, Ankara.
“There is no amount of central bank involvement that would do anything to stop a currency from aligning to what the macroeconomic fundamentals are,” Kganyago said. “We have had a shock to our commodity prices and the currency has depreciated. It just provided a cushion to our export sector.”
The rand tumbled more than 8 percent over the past month on concern that prices for commodities, which account for more than half of the nation’s exports, will plunge further as China’s economy slows. While the bank has repeatedly cited a weak currency as the biggest risk to consumer prices, Kganyago played down the feed-through impact, citing the decline in oil prices.
“What we have seen is that with every episode of the rand’s depreciation, the pass-through from the depreciation of the currency into the inflation rate had been muted and had been lower,” he said. The rand’s depreciation “is also accompanied by the decline in the oil price and the decline in the oil price is disinflationary.”
The Reserve Bank raised its benchmark repurchase rate by 25 basis points to 6 percent in July, the first policy move in a year, to help fight inflation that accelerated to 5 percent in July. Kganyago said on Aug. 11 that the current tightening cycle would be moderate.
The oil price decline “gives a fillip” to the South African economy through lower energy bills as the nation imports about 70 percent of its crude oil requirements, the governor said.
The bank may have to cut its economic growth forecast for this year after the economy contracted by an annualized 1.3 percent in the second quarter, he said. The monetary policy committee said in July that the economy will grow 2 percent this year and 2.1 percent in 2016.