The movements of South Africa’s rand, which weakened to a four-year low against the dollar, are “somewhat exaggerated,” the central bank’s Deputy Governor Daniel Mminele said.
The rand, which breached 10 versus the dollar yesterday for the first time since March 2009, has underperformed compared with peers from other commodity-producing and emerging market countries, Mminele, who heads the lender’s financial markets department, said in a speech to bankers in Pretoria.
This shows its “growing sensitivity to domestic factors such as concerns about the funding of a wider current-account deficit, as well as broader socio-economic issues illustrated by increasingly violent labor conflicts in the mining and other sectors,” Mminele said yesterday.
The South African Reserve Bank last week kept its key interest rate at a 30-year low of 5 percent as it tries to balance the prospect of inflation breaching its 3 percent to 6 percent target with flagging growth in the continent’s biggest economy.
The rand will stop depreciating at “some point” and retrace its losses, National Treasury Director General Lungisa Fuzile said in an interview yesterday on Johannesburg-based Radio 702. The labor situation in South Africa needs to be stabilized and strikes at the nation’s mines avoided because the economy isn’t diversified enough and depends too much on metals and minerals for its exports, he said.
The inflation rate has remained at 5.9 percent for the three months through April, according to the statistics agency. It is expected to average 5.8 percent this year and will exceed the bank’s target in the third quarter, Governor Gill Marcus said on May 23.
Inflation may be spurred by a weakening rand, which has declined 17 percent this year, the worst-performing of 16 major currencies monitored by Bloomberg. The rand fell 1.5 percent to 10.1945 per dollar by 10:05 a.m. in Johannesburg after sliding 2.2 percent yesterday. It has declined for 16 of the past 17 trading days.
“The current level of the exchange rate, if sustained, poses a significant upside risk to the inflation outlook,” Marcus said on May 23.
The economy expanded an annualized 0.9 percent in the first quarter, its slowest pace since a 2009 recession, Statistics South Africa said on May 28. Output is now under threat by a new round of mining strikes, prompted in part by union rivalry.
If government revenue falls short, there is little South Africa can do, Fuzile said in an interview with Johannesburg-based state-owned broadcaster SABC3 yesterday. The Treasury will stick with plans announced in the budget in February of placing a “ceiling” on spending, he said.