Cape Town - Political turmoil stemming from the dispute between Finance Minister Pravin Gordhan and a police unit is creating uncertainty, which “isn’t helping the rand”, South African Reserve Bank Governor Lesetja Kganyago said.
The central bank is concerned that heightened rand volatility will feed into inflation, Kganyago said in an interview televised by CNBC Africa on Thursday. While the bank hasn’t changed its inflation forecasts since the last Monetary Policy Committee meeting in July, it remains concerned about the potential for price increases, he said.
“The Reserve Bank is facing a dilemma of low growth and inflation that is still elevated,” Kganyago said. “The monetary policy stance is still accommodating” though the central bank remained worried about inflation, he said.
The rand gained 1 percent on Thursday to 14.59 against the dollar at 8.45pm in Johannesburg, paring losses of 8.5 percent in the last nine days of August after a special investigative unit of the South Africa Police Service told Gordhan to report to their office ahead of possible charge relating to alleged irregularities at the tax authority, which he headed from 1999 to 2009.
‘Pause button’
The consumer inflation rate slowed to 6 percent in July, at the upper limit of the Reserve Bank’s 3 percent to 6 percent target range, after it increased its policy rate three times in the past year to 7 percent. The central bank forecasts the economy won’t expand this year.
A rate increase by the Federal Reserve would cause a repricing of South African assets including the rand, which could fuel further price rises, Kganyago said. While the central bank has “pressed the pause button” on rate increases, forecasting growth in the current environment is “risky” and speculation about possible rate cuts is without foundation, he said.
Asked about reports of ruling party politicians taking aim at the Reserve Bank, Kganyago said he had no concerns about the central bank’s independence, which is guaranteed in the constitution.
BLOOMBERG