Reserve Bank will not weaken rand
Intervention 'inappropriate'
November 18, 2009
By Ethel Hazelhurst
South Africa's central bank will not attempt to weaken the rand. That was the clear message yesterday from the new Reserve Bank governor, Gill Marcus, in the face of increasing pressure to curb the currency's strength.
"There is no way the bank will intervene to achieve a certain exchange rate. That would be inappropriate," she said at a press conference after announcing the decision of the monetary policy committee (MPC) to keep the bank's repo rate at 7 percent.
The repo rate has been cut by 5 percentage points since December, after a similar hike between June 2006 and last June.
Marcus said she was concerned about the effect of the strong currency on the economy, but also pointed out its beneficial impact on inflation.
The currency, which had weakened to R7.48 to the dollar earlier in the day in response to comments by industrialist Cyril Ramaphosa that the rand should be much weaker, recovered temporarily but then resumed its fall to close at R7.44, 12c down on the day.
The meeting was the first to be chaired by new governor Marcus, who took over from former governor Tito Mboweni a little more than a week ago.
And it came after a weekend decision by the ANC and its alliance partners that the Reserve Bank's mandate should be reviewed. The alliance partners - trade union federation Cosatu and the SACP - have been pressing for the mandate to be broadened from a single target of price stability to include economic growth and job creation.
On whether the bank's mandate should change, Marcus said she did not want to pre-empt discussions on the issue.
"We will engage with those who have concerns and see what we achieve."
But she said a central bank's mandate, whether implicit or explicit, was to combat inflation.
Targeting was one way to achieve this objective but it was not the only tool available to a central bank, she said.
Consumer inflation has been above the 3 percent to 6 percent target since March 2007. It was 6.1 percent in September.
Marcus would not be drawn on future MPC decisions and said only that they would be determined by events.
Razia Khan, the head of Africa research at Standard Chartered, noted that forward rate agreements (FRAs) "have moved away from pricing in any possibility of a rate cut, however small". FRAs are three-month contracts that run at some time in the future.
Marcus stressed the need for broad engagement on economic issues. The world "is not the same as before, we have to meet the challenges of the time".
She singled out Eskom's proposed tariff increases as a major source of uncertainty about inflation. The electricity utility has asked for three annual tariff increases of 45 percent each. But this spectre is receding in the face of political opposition.
"We welcome the fact that the minister concerned and the treasury is engaging with Eskom. We all recognise there has to be a price increase but it's the manner in which it is done that is important."
She highlighted the need for a co-ordinated national programme to deal with problems relating to inflation, economic growth and unemployment.
"We have a task within that programme," she said.
|
|
