Johannesburg - South Africa's Reserve Bank would not hesitate to act if the medium-term inflation outlook were to worsen, deputy Governor Daniel Mminele said on Wednesday.
The central bank has kept interest rates at four-decade lows since last cutting them in July last year, as it balances the need to help the weak economy with that of guarding against price pressures from a weaker rand.
“The monetary policy committee ... would not hesitate to take appropriate action, should the medium-term inflation outlook deteriorate significantly,” Mminele said in a speech posted on the bank's website.
Consumer inflation has eased back to within the bank's 3-6 percent target band after breaching it for some months, but the Reserve Bank has said upward risks lurk from the sharp depreciation in the rand.
The currency has fallen nearly 24 percent against the dollar this year amid a global sell-off of higher yielding but riskier emerging markets as investors speculate the US Federal Reserve could soon start tapering its asset purchases.
The currency is particularly vulnerable because of South Africa's nagging twin deficits on the current account and the national budget.
“Phases of rand under-performance relative to other large emerging market or commodity-linked currencies have frequently coincided, of late, with disappointing foreign trade or current account data releases,” Mminele said.
“There are no doubt challenges that we confront today as a country and those challenges are reflected in the somewhat weaker investor sentiment.”
But the deputy governor said there was still “a case” for investing in emerging markets despite uncertainties around the timing and scale of Fed tapering, noting that such markets were the biggest contributors to global growth. - Reuters