Pretoria - South Africa's central bank
on Monday warned that the recent cabinet reshuffle that saw the
finance minister fired and the country's credit relegated to
"junk" could pressure the rand and accelerate inflation as
inventors sold off local assets.
The rand has slipped nearly 12 percent since March
27 when President Jacob Zuma recalled then-finance minister
Pravin Gordhan from an international roadshow, before firing him
later that week.
Last week S&P Global and Fitch cut the country's sovereign
credit rating to subinvestment on the back of Gordhan's axing,
both saying his departure raised the risk of a fiscal policy
shift.
"Rising uncertainty about the future of economic policy
could prompt capital outflows in anticipation of such
downgrades," the Reserve Bank (SARB) said in its annual Monetary
Policy Review.
The bank said the biggest risk to its policy aim of keeping
consumer prices below 6 percent was the weakening exchange rate.
"Domestically the situation has been challenging ... it has
been making policy-making very difficult," he told a news
conference after the Reserve Bank (SARB) released the review.
In March the bank kept its benchmark repo rate unchanged at
7 percent, citing re-emerging risks to the exchange rate. It
added then that it had reached the end of its tightening cycle
which has seen it lift rates by a cumulative 200 basis points
since 2014.
"The risk is that the rand could follow a more depreciated
path than expected, which would, other things being equal, raise
inflation," the bank said in the statement.
Prior to that meeting, forward rate agreements were pricing
in at least one rate cut by 25 basis points in 2017, but on
Monday the forward markets were pricing zero percent probability
of a cut this year.
In response to questions from Reuters on Monday the bank
said it would stick to setting benchmark lending rates rather
than intervene in the exchange markets.
"We would consider becoming involved if the orderly
functioning of the foreign exchange markets is under threat,
guided by financial stability considerations," Deputy Governor
of the Reserve Bank (SARB) Daniel Mminele said in emailed
responses to questions.