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ANKARA — A further fall in South Africa’s rand is not necessarily a bad thing and the currency should be allowed to play its role as a shock absorber, Reserve Bank governor Lesetja Kganyago said on Saturday.
Kganyago also told Reuters in an interview at the Group of 20 finance chiefs meeting that, to the extent rand depreciation was part of a global foreign exchange rebalancing, it need not be a worry.
“Our assessment of the South African economy is that the risk to the economic outlook is on the downside.
“It doesn’t follow that the depreciation of the rand is a bad thing for South Africa, if anything, it should spare the export sector and (importers),” he said.
The rand hit a record low to the dollar last month, as rising concerns about waning growth in China hit commodity-linked currencies, prompting the central bank to say it may intervene to try to quell volatility.
Currencies are a major topic at the G20 meeting in Ankara, as emerging markets such as South Africa and Turkey have been battered this year as the dollar has surged on expectations the United States will hike rates.
Separately, South African Finance Minister Nhlanhla Nene told Reuters markets have priced in a US interest rate hike and are unlikely to see big spillovers from policy normalisation in the world’s largest economy.
“The communication and the cooperation that we’ve been having from the US has actually helped,” he said.
“That’s why I don’t think it’s … an issue that might have huge, unexpected spillovers.”
Nonetheless, economists expect the weaker rand is likely to fuel inflation, putting pressure on the central bank to raise domestic rates further despite an economy struggling to grow in the face of South Africa’s worst power crisis in seven years.
Kganyago said he expected that electricity constraints will begin to be alleviated somewhat towards the end of 2016 and beginning of 2017. — Reuters
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