Marcus said that it was too early to assess the impact of Europe’s troubles on South African growth. She added that the effect on inflation was likely to be modest, as the weaker currency would be offset by lower commodity prices.
The audience asked a number of questions on the rand and whether or not the Bank would intervene to weaken the currency, due to calls by both labour unions and business that the strong rand was harming competitiveness.
The Governor again reiterated the fact that the Reserve Bank did not target a particular value of the rand. Marcus also highlighted that the main aim of the SARB was to promote macro-economic stability by containing inflation, in order to ensure a stable business environment. She argued that issues around competitiveness were rather the gambit of microeconomic policy and were not best solved by the Reserve Bank. She ended the meeting on a lighter note by highlighting the progress made by Brazil, which has previously suffered under hyperinflation, where presidential candidates are currently running on an inflation targeting platform, promising to keep inflation under control. Wryly implying that not only Bafana Bafana could learn a few lessons from Brazil. Deputy Governor Mminele said that the Bank was concerned about the volatility of the rand and was looking at ways to achieve a more stable and predictable currency. However, he noted that one “could not fight market trends”. The committee also noted that imposing capital controls was not the answer to curbing the rand’s strength, as South Africa had a low savings rate and was dependant on capital inflows to fund the current account deficit. The Bank warned against possible negative implications of undermining investor confidence.
Source: Nedbank Economic Commentary
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