After the rand’s strong performance this week, the Reserve Bank would revisit its assumptions about the potential impact of currency weakness on inflation, governor Gill Marcus said yesterday. She was speaking at the close of the bank’s monetary policy committee (MPC) meeting, which saw no change in the bank’s 5 percent repo rate.
Marcus said the bank had revised its forecast for average inflation over the next two years upward: from 5.5 percent to 5.8 percent next year; and from 5.2 percent to 5.4 percent in 2015. But she noted the assumptions would be “revisited on an ongoing basis” following the Federal Reserve’s decision to hold off on tapering.
However, she described the Fed’s delay as “a temporary reprieve” and warned: “The continued uncertainty relating to the timing of the inevitable slowdown in bond purchases implies the emerging market currencies, including the rand, are likely to experience a protracted period of volatility.”
Inflation came in at 6.4 percent last month. But the MPC expects the rate to be the peak of the inflation cycle and the breach of its 3 percent to 6 percent target to be temporary.
Marcus identified the exchange rate, along with “wage pressures”, as the main risks to inflation. She highlighted the 7.9 percent “overall average wage settlement rate in collective bargaining agreements” in the first half of the year. And she referred to figures from Statistics SA, which showed average salaries and wages rose by 8.7 percent year on year in the second quarter.
She emphasised the bank’s commitment to containing inflation. “The MPC will not hesitate to take appropriate action to maintain the integrity of the inflation targeting framework and to anchor inflation expectations at a lower level.”