Gordhan Calls on South African Central Bank to Boost ReservesRene Vollgraaff
South African Finance Minister Pravin Gordhan called on the central bank to boost foreign-currency reserves to help stabilize the rand and curb inflation.
“We must ensure that our fiscal and monetary choices keep inflation low and maintain the recent gains in competitiveness,” Gordhan told lawmakers in his budget speech in Cape Town today. “While we have made significant progress in accumulating reserves, there is scope for further improvement.”
The rand has lost more than a fifth of its value against the dollar since the start of last year, fueling inflation and prompting the Reserve Bank to raise interest rates for the first time in more than five years. A selloff of emerging-market assets, which has contributed to the rand’s weakness, has made it difficult for the bank to buy dollars to add to foreign-currency reserves.
Inflation will probably average 6.2 percent this year, exceeding the bank’s 3 percent to 6 percent target band, Gordhan said. Governor Gill Marcus said last month the target will probably be breached from the second quarter of this year until the second quarter of 2015, giving policy makers reason to increase the benchmark repurchase rate by half a percentage point to 5.5 percent.
The Treasury forecast the economy will grow 2.7 percent this year, down from an October estimate of 3 percent and compared with 1.9 percent expansion in 2013. Growth will probably accelerate to 3.2 percent next year and 3.5 percent in 2016.
“Potential domestic risks to the outlook include further delays to the introduction of new infrastructure, particularly additional electricity capacity, higher inflation due to the weakness of the rand, and protracted labor disputes which could depress consumer and business confidence,” Gordhan said.