South Africa’s economy faces a turbulent time ahead as the prospect of interest rate normalisation in the United States and a slowdown in China’s growth complicate policy, Reserve Bank Governor Lesetja Kganyago said on Tuesday.
Speaking at the Reuters Economist of the Year event, Kganyago also said China’s devaluation of its currency to stem an economic slide would boost the competitiveness of local manufacturing exports to the world’s second largest economy.
The South African Reserve Bank raised domestic rates for the first time in a year in July despite lacklustre growth, citing inflationary pressure partly stemming from a weaker rand.
The rand has weakened nearly 10 percent against the dollar this year, undermined by investors selling off emerging markets on expectations that the U.S. Federal Reserve will soon start tightening policy.
“The global economy is entering into new unchartered waters with the prospect of normalization in the U.S. and a slowdown in China, impacting on commodity prices,” Kganyago said.
“The reality, is that South Africa, along with other emerging market economies, is likely to face an increasingly turbulent time ahead.”
He reiterated that the rand exchange rate was one of the main upside risks to the inflation outlook, adding however that the central bank did not target a level for the currency.
“A complicating issue recently has been the fact that the traditional pass-through relationship from the exchange rate to inflation appears to be lower than during the previous episodes of rand weakness,” Kganyago said.
“Time will tell if this is a temporary phenomenon.”
