The central bank of South Africa is all set to curb inflation as the rand is weakening due to tighter monetary policy in the United States, said Deputy Governor Daniel Mminele.
Mminele said at a conference hosted by the Bureau for Economic Research in Johannesburg that the balance of risks to country’s inflation outlook continues to be tilted to the upside. Mminele added that an unchanged stance in the context of monetary policy cannot be maintained for an indefinite period. The Deputy Governor also said the present-day environment calls for persisted vigilance from policymakers and preparedness to provide answers to the evolving domestic and global, financial markets and economic environment.
The rand has weakened 7 percent against the United States dollar since the start of the year. This makes it the biggest risk to the inflation outlook and higher U.S. interest rates that may result in further depreciation, said Mminele. On June 12, the rand fell 0.6 percent against the US dollar and was trading at 12.4356 as of 1:05 p.m. (Johannesburg time).
South African policymakers are under constant pressure because of rising food and energy costs and a weaker rand to raise the benchmark rate for the first time since July from 5.75 percent. In April this year, inflation accelerated to 4.5 percent and the SA Central Bank forecasts it will peak at 6.8 percent in next year’s first quarter, which would exceed the 3 percent to 6 percent target band.
Mminele added any considerable exchange rate weakening in reaction to the tightening monetary policy of the United States may result in inflation to diverge even further from target that would cause second-round inflationary pressures.
South Africa faces a tough time in the months to come for ensuring that inflation targets are met. This macroeconomic pressure along with prospective interest rate rises in the U.S. means a further rand weakness in the coming months is a very much likely possibility.