Rate hike seen on weak rand
Johannesburg - The central bank reiterated that a weaker rand might fuel inflation but that higher interest rates were unlikely to pose a major threat to economic growth.
Reserve Bank governor Tito Mboweni made the comments on Saturday in a speech at the Namibian Stock Exchange, two days after he made his first comments about the currency's slide of about 20% against the dollar this year.
Mboweni again noted that buoyant consumer demand has contributed to the expanding current account deficit, which was higher than 6% of GDP in both of the first two quarters of the year.
"This in turn has contributed to the recent weakness in the rand, which has depreciated on a trade weighted basis by approximately 23% since early May," he said in a speech published on the South African Reserve Bank's website.
"This degree of depreciation, in turn, poses a further risk to the inflation outlook."
Rate hike 'almost certain'
Mboweni made similar comments on Thursday, when he also said the central bank was committed to keeping inflation in check.
The currency fell towards the key psychological mark of R8/$ on Wednesday before rising from R7.9755 - a new 3-¼ year low. It closed at R7.82 on Friday.
The central bank is almost certain to hike interest rates this coming week after lifting its repo rate by a full percentage point to 8.0% since June, analysts say.
Most expect a half percentage point rise at the October 11-12 meeting and a similar hike in December, but recent hawkish comments have raised the alarm that the cycle may be higher and steeper than previously thought.
Mboweni reiterated that the interest rate increases so far were not likely to pose a big threat to South Africa's economic growth, which averaged 4.9% last year.
"Despite the change in the monetary policy stance, we do not anticipate that growth prospects will be significantly undermined," he said.
News source: www.news24.co.za
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