JOHANNESBURG - The central bank will only intervene to protect the currency if “excess volatility or abrupt and disorderly adjustments” threaten the orderly functioning of the market, the deputy governor said on Tuesday.
“Policy flexibility requires that foreign exchange intervention continues to be part of the monetary policy toolkit to support economic and financial stability,” Deputy Governor Daniel Mminele said in a speech delivered in New York that was posted on the bank’s website.
The Reserve Bank two weeks ago resisted political pressure and kept benchmark rates unchanged at 6.5 percent.
The Reserve Bank’s (Sarb) September meeting was closely watched after its emerging market peers Turkey and Russia raised their main lending rates to keep in check inflation driven higher by weakening currencies.
The rand has fallen close to 20 percent against the dollar this year while yields on bonds have also spiked.
The 4-3 decision to keep rates pat rather than hike also exposed tensions between policymakers and the ruling party which has previously argued for a closer alignment of fiscal and monetary policy.
The ANC released and then retracted a statement calling on the bank to do more to support the economy and cash-strapped consumers. The ANC voted in December to change the bank’s ownership from private to public.
“The Sarb has allowed the exchange rate to act as a shock absorber and adjustment mechanism,” Mminele said.
“This does not mean that we are totally indifferent to exchange rate movements. It also does not mean that there cannot be circumstances where the cost of not intervening to dampen excess volatility or abrupt and disorderly adjustments, could be higher than that of intervening.”