Reserve Bank deputy governor speaks on rand weakness and a possible interest rate hike
With the rand hitting a seven month-low on Tuesday amid fears that the China/US trade war could have a serious impact on emerging markets, the South African Reserve Bank (SARB) says it will not make any ‘knee-jerk’ reactions.
Speaking to CNBC on Tuesday (19 June), the SARB’s deputy governor Kuben Naidoo said that the bank is still taking a ‘wait-and-see’ approach.
“We are concerned – in some ways we are a small open economy, and conditions in our economy depend on the global economy, on trade conditions, on a strong demand for our goods. If there is to be a trade war, if there is to be a slowdown in the global economy, that will affect us,” he said.
He added that while the SARB does track factors such as the rand’s weakness, it would first have to see how persistent the weakness is and its affect on inflation. He also highlighted that while other emerging markets have hiked their rates, South Africa has more policy space and hiked interest rates two years ago.
“If there is persistence in that currency weakness and it feeds into other prices, we would have to act. It’s not an immediate response, we will wait – because the economy is weak we can afford to wait and see,” he said. “That may be a few months, maybe a few quarters.”
Naidoo said that the potential trade-war was concerning as the local economy is reliant on trade for growth, and a slowdown would effect the country. He noted that if China was hit by tariffs and demanded less commodities it would impact the economy.
“After the election of the president of the ruling party in December there was a significant rebound and improvement of confidence, that comes on the bank of at least five years of very poor economic performance and rising mistrust between business and government.
“The new president has certainly boosted confidence, however that effect fades over time, and the country is now also dealing with additional international factors,” he said.
In the afternoon session, the rand traded at R13.82 (1.40%), against the dollar, having lost more than 2% in earlier trade.
Loading ...
