SA growth prospects 'sound'
Johannesburg - South Africa's growth prospects remain sound despite the turmoil that has shaken emerging markets in the past month, prompting "significant movements" in the rand, the central bank said on Tuesday.
The rand slid to a 2½-year low against the dollar last week, raising concerns the South African Reserve Bank may raise interest rates further than anticipated to curb price pressures ignited by the currency's depreciation in 2006.
But central bank governor Tito Mboweni said that foreigners remained net buyers of South African financial assets - which means that capital inflows may continue to finance a widening deficit on the current account, the broadest measure of trade.
"No cycle of steep rate hikes"
Mboweni also said that "moderately higher interest rates should not be seen to be undermining growth", suggesting that the country was not on course for a cycle of steep rate hikes after an initial increase of half a percentage point on June 8.
"Despite the recent turbulence in international markets, we are of the view that growth prospects remain sound in South Africa and the rest of the world," Mboweni said in a prepared speech to the London Capital Club in London.
South Africa's low level of foreign debt, improved international reserves and credit rating upgrades meant that it was "less likely to be vulnerable to balance sheet effects that have characterised previous emerging market crises," he said.
The rand extended its losses against the dollar since mid-May to about 20% after it hit R7.52/US$ last week, its lowest level since January 2004, according to Reuters data.
It traded two cents weaker at R7.29/$ after Mboweni spoke in London.
Growth on course
The currency's abrupt slide in the past month, prompted by steep falls in commodity prices and a global sell-off in emerging markets have revived memories of volatility seen in 2001, when the rand hit a record low of R13.85/$.
But inflation has remained inside its 3-6% target range for 32 months in a row and economists believe South Africa's solid economic fundamentals will help its markets weather the latest bout of global turbulence.
Failing to respond to inflation risks could hurt growth, but the SARB would play its part by ensuring that inflation remained within its target range, Mboweni said.
South Africa's economy grew by 4.9% last year, its fastest pace in 23 years, and the government had predicted a similar pace of expansion this year.
Mboweni said he expected "moderately lower" growth this year after the economy expanded by 4.2% in the first quarter.
But he said growth could accelerate to 6% on a sustainable basis if the government's investment strategies were successful.
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