Global Courant 2023-05-11 12:43:06
The weaker rand has been a sore point for the South African economy, said Lesetja Kganyago, the governor of the South African Reserve Bank (SARB).
South Africa’s weak exchange rate has contributed substantially to inflation, he said.
Speaking at a public lecture at the University of Johannesburg (May 10), the governor said the rand was one of the worst performing emerging market currencies this year.
On May 10, the rand hit a three-year low, falling to R18.83 per dollar. Since April 2023, the rand has been above the R18 against the dollar
The Reserve Bank said it remains committed to preserving the value of the currency in the interests of balanced and sustainable growth; however, it now faces the challenge of doing so in a context where many of the drivers of both inflation and growth are beyond its control.
Kganyago said that over the past 12 months, idiosyncratic factors, such as continued tax cuts and the recent graylisting of the province by the Financial Action Task Force, have kept investors wary of South Africa.
In general, a weak currency can contribute to higher domestic inflation by raising the cost of imported goods and raw materials, leading to knock-on effects on everyday consumers.
As the currency loses value, more is needed to buy the same amount of goods, increasing inflation.
Speaking on the Money Show, Kganyago said the currency remains volatile – pointing out that it could be the best or worst performing currency on any given day.
According to the governor, the SARB has a responsibility to protect the value of the currency in terms of what it can buy domestically“not what it can buy in New York or Hong Kong or London or Frankfurt.”
As for investors keeping their distance from the country, the depreciation of the rand has offset the impact of lower global energy and food costs on domestic inflation, Kganyago said.
“In parallel with somewhat easing global price pressures, domestic headline inflation has gradually declined and stood at 7.1% in March 2023.”
“Despite this moderation – mainly driven by a decline in fuel prices from the peaks seen in mid-2022 – inflation remains well above the SARB-desired midpoint of the 3-6% target range,” Kganyago said.
The edge’s weak position is likely to continue. ETM Analytics said that until there is a concrete plan to end the nationwide energy crisis, the underperformance will continue.
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