Lesetja Kganyago, the governor of the South African Reserve Bank. File picture: Carlo Allegri
Lesetja Kganyago, the governor of the South African Reserve Bank. File picture: Carlo Allegri

Brexit: SARB sees gloom

By Wiseman Khuzwayo Time of article published Jun 30, 2016

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Johannesburg - The UK’s vote to leave the EU would hurt South Africa’s economic growth, according to Reserve Bank Governor Lesetja Kganyago.

Read also: Brexit could harm SA's growth

“We would not venture into a recession at this stage, but there is no doubt that it will slow the South African economy from the weak growth that we already have,” Kganyago said at the European Central Bank Forum in Portugal.

The economy shrunk by 1.2 percent in the first quarter, as mining and farming output slumped due to low mineral prices and a drought.

This year gross domestic product expanded at the slowest pace since a 2009 recession, according to the Reserve Bank.

The central bank would consider intervening in the foreign-exchange market if its orderly operation was threatened, deputy governor Daniel Mminele said last Friday.

“It has affected sentiment and investors were looking for safe assets. We are not seen as one of the safe assets,” Kganyago said.


The Reserve Bank’s monetary policy committee (MPC) left the benchmark repurchase rate unchanged at 7 percent last month after raising it four times since last July, and is due to announce its next interest rate decision on July 21.

While inflation slowed to 6.1 percent last month, it was still outside the MPC’s 3 percent to 6 percent target band.

Brexit would not make much change to the Reserve Bank’s interest rate outlook, Kganyago said. “There are so many moving parts at the moment. In looking at the effect of the global economy on South Africa we look beyond the UK.”

“The Brexit vote chaos is over. That, anyway, is what the markets are saying. Not only have hard-hit asset prices bounced back nicely but expected levels of volatility have dropped away sharply,” John Cairns, a currency strategist at Rand Merchant Bank, said in a note yesterday.

African Economics’ analysts Irmgard Erasmus and François Conradie said while Brexit had added to volatile global risk sentiment, they continued to view systemic risk from China as the singular most salient source of external risk to Africa’s economies.

“A sharper-than-anticipated pace of economic slowdown, or sectoral rebalancing, in the Asian economic giant will have effects on African soil via large direct (bilateral trade) and even larger indirect channels, due to the shock to the regional terms of trade in light of depleted foreign buffers and inadequate policy reform.” They said the direct impact of Brexit on Africa would be contained to the forex and financial markets over the short term.

The rand gained 42.15c to bid at R14.8114 to the dollar by 5pm as all but three of the 31 major and emerging market currencies tracked by Bloomberg gained. It was the biggest gainer among emerging markets. Against sterling, it rose a seventh day, strengthening beyond R20 to the pound for the first time since August.

The rand is set for its best month against the UK currency since 1986, having strengthened 13.6 percent. At 5pm it was bid at R20.0290, 26.78c up on the day.

Benchmark government bonds gained yesterday, driving yields to levels last seen before President Jacob Zuma fired Nhlanhla Nene as finance minister last December, while the rand was buoyed as foreign investors piled into local stocks and bonds.

Offshore investors continued to pile into South African assets, with inflows into the JSE at the longest streak since 2009 and purchases of government bonds at R14.7 billion so far in June, compared with outflows of R6.8bn in the same period last year.

* With additional reporting by Bloomberg


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