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#Junkstatus: Pressure on the rand could hike inflation

Economy
Johannesburg - South Africa’s central bank on Monday warned that a recent cabinet reshuffle that saw the finance minister fired and the country’s credit rating relegated to “junk” could put pressure on the rand and accelerate inflation as inventors sold off local assets.

The rand has dropped nearly 12 percent since March 27, when President Jacob Zuma recalled then-finance minister Pravin Gordhan from an international roadshow, then fired him later that week.

In response, S&P Global Ratings and Fitch cut the country’s sovereign credit rating to sub- investment grade, both saying Gordhan’s departure raised the risk of a fiscal policy shift.

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Reserve Bank governor Lesetja Kganyago. File picture: Waldo Swiegers/Bloomberg

The central bank governor said it was too early to tell whether the downgrades would push the economy into a recession.

Read also: Inflation moderates to 6.6%

“It’s too early to tell if we are in a recession,” South African Reserve Bank (SARB) governor Lesetja Kganyago said at the release of the regulator’s Monetary Policy Review.

“The environment is pretty fluid With the downgrades, we expect the cost of capital to rise, and that rising cost of capital could force businesses that wanted to invest to rethink some of their projects. That will have an impact on growth.”

In March, the bank kept its benchmark repo rate unchanged at 7 percent. 

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