The decline in South Africa’s currency and the spread of pessimism in emerging markets may be exaggerated, Reserve Bank Governor Gill Marcus said.
Gloom over the outlook for developing economies is “probably overdone,” Marcus said in a speech at a business forum in Johannesburg today. She said South Africa’s rand “tends to overshoot” when there are broader movements on currency markets.
The rand lost more than 15 percent against the dollar this year, making it the worst performer among 16 major currencies tracked by Bloomberg. Other emerging-market currencies have also slid on expectations the U.S. Federal Reserve will start to scale back its monetary stimulus.
Marcus said such action by the Fed is “inevitable” at some point and emerging markets have been given a “taste” of what will happen when it comes.
She said the rand’s decline didn’t stem from policy mistakes on South Africa’s part, though she warned of a loss of competitiveness, partly caused by rising labor costs, that’s reflected in the country’s widening current-account deficit. The gap widened to 6.5 percent of gross domestic product in the second quarter.