Further rand weakness not all bad - Sarb governor

September 6, 2015, 12:19pm

Lesetja Kganyago (AFP)

Further rand weakness not all bad - Sarb governor

Ankara - A further fall in the rand is not necessarily a bad thing and the currency should be allowed to play its role as a shock absorber, SA Reserve Bank governor Lesetja Kganyago said this weekend.

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 Sarb 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 a 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 is 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 Sarb 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.

Fin24