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Maintaining low and stable inflation was the most effective way for the central bank to help the economy, the central bank governor said on Wednesday, pushing the rand firmer.
The economy of Africa’s most industrialised country has been hit by a ravaging drought, and its economic prospects do not look promising, Governor Lesetja Kganyago said at a conference.
Kganyago said the Reserve Bank was committed to containing inflation, although its current monetary policy tightening cycle was one of the most gradual on record.
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The bank has gradually raised interest rates by a cumulative 200 basis points since July 2014, as it fights price pressures while at the same time protecting the ailing economy.
At its last policy meeting earlier this month, the central bank cut its 2016 growth forecast to 0.6 percent as it left the benchmark repo rate unchanged at 7 percent. Inflation stood at 6.2 percent in April.
“The South African Reserve Bank is certain that an environment of consistently low and stable inflation is the best contribution it can make to a balanced and sustainable growth (outlook),” Kganyago said.
Recent shocks to growth and inflation had created “a great deal of uncertainty”, he said.Inflation is expected to persist above the top end of a 3-6 percent target band until late next year, he said.
“In this context, at least, you can be certain that the South African Reserve Bank is committed to containing inflation,” Kganyago added.
The rand extended its gains, up 0.6 percent after Kganyago’s comments, and traded 0.42 percent firmer at 15.6400 to the dollar by 0851 GMT.
Kganyago’s comments come days before Standard and Poor’s, which ranks South Africa just one step above sub investment grade, is due to make public its rating decision on Friday.
