March 8, 2013 / 6:41 PM / 5 years ago

Rand may have weakened too much: South Africa's Marcus

CERNOBBIO, Italy (Reuters) - South Africa’s rand may have weakened too much this year, requiring policymakers to keep a close eye on wages and prices, but “we are not inflation-target nutters”, central bank chief Gill Marcus told Reuters on Friday.

South African Reserve Bank Governor Gill Marcus shows off a new South African banknote, which features an image of former president Nelson Mandela on the front and images of the country's "Big Five" wild animals on the reverse, before conducting the first transaction in Pretoria, November 6, 2012. REUTERS/Siphiwe Sibeko

Speaking at the margins of a financial conference in Italy, Marcus said this year’s 15 percent fall in the rand against the dollar was “a bit overdone.”

“We do not target a level of a currency but right now it is weak,” said Marcus. “Perhaps that (the fall in the rand) is a bit overdone and we will look in the medium-term how it retraces,” she said.

“The impact depends on how long it stays at the current level in terms of inflation.”

Marcus expects inflation, which is stoked by the weak rand, to return within a targeted 3 to 6 percent range after testing its upper and possibly briefly overshooting it.

High inflation, currently at 5.6 percent, is limiting Marcus’ ability to intervene to counteract sluggish growth, the governor said in a speech earlier on Friday.

“We expect inflation to go to the top of the band, possibly breaching that band but for a relative short period of time,” Marcus told Reuters in a rare interview while attending a financial conference on the shores of Lake Como.

“Our models indicate it will return within the band within the inflation forecast period, so some time next year.”

The central bank, which considers both inflation and sluggish growth important challenges, would take various elements into accounts when considering its next policy move.

“We are not inflation-target nutters,” Marcus said. “You have got to look at what is driving it, what you can influence.”

“The important thing for us is to avoid inflation going into second-round effects, something we are very vigilant about and we will take whatever necessary measures there are.”


Despite sluggish economic growth, the Reserve Bank has kept its benchmark repo rate at 5 percent since a 50 basis point cut in July last year, citing rising inflationary pressures.

The rand has been under pressure as investors worry about the impact of wage strikes in the mining section, falling to a four year low of 9.1895 to the dollar this week. It was at 9.1300 to the dollar at 1502 GMT, marginally firmer than its close in New York on Thursday.

Finance Minister Pravin Gordhan cut the 2013 economic growth forecast for this year to 2.7 percent from the 3.0 percent earlier seen, partly due to subdued demand from South Africa’s key markets in Europe.

Growth expectations for the next two years have also been cut, with 3.5 percent seen for 2014 and 3.8 percent expected in 2015, far below the 7 percent growth the government says is needed to slash unemployment of around 25 percent.

The Reserve Bank’s own current forecasts are for growth of 2.6 percent in 2013 and 3.8 percent in 2014.

Marcus said in her speech the favourable outcome for next year partly depended on a stronger recovery in Europe.

“Therefore this forecast is subject to downside risk,” she added.

The relatively subdued growth outlook and the negative output gap meant the Reserve Bank had been more tolerant of inflation at the upper end of the target range, Marcus said.

“However, our room for further accommodation is constrained by the need to keep inflation within the target over a reasonable time horizon,” Marcus added.

Additional reporting by Stella Mapenzauswa in Johannesburg; editing by Ron Askew

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