Oct. 27 (Bloomberg) -- South Africa’s rand is only one of several factors affecting inflation and the currency’s volatility isn’t linked to the country’s economic fundamentals, central bank Deputy Governor Lesetja Kganyago said.
“It is not the exchange rate that determines whether you meet the inflation target or not,” Kganyago said in an interview today in Pretoria, the capital.
South Africa’s rand has plunged 15 percent against the dollar this year, making it the worst performer among 16 major currencies tracked by Bloomberg as investors cut exposure to high-risk, emerging market assets. The depreciation is an “upside risk” to inflation, Daniel Mminele, another deputy governor at the central bank, said Oct. 18.
There is no need to tighten monetary policy if forecasts show inflation will return to the 3 percent to 6 percent target range, as the Reserve Bank expects it to do in the second quarter, Kganyago said. Consumer price inflation, which accelerated to 5.7 percent in September, will probably peak outside the band in the first quarter, he said.
The Reserve bank has kept its benchmark interest rate at a 30-year low of 5.5 percent this year to help support economic growth even as inflation accelerated. Producer prices climbed 10.5 percent in September from a year earlier compared with 9.6 percent in August, the statistics agency said today.
An agreement reached by European leaders to help ease the region’s debt crisis is a “step in the right direction,” Kganyago said. Policy makers have to be clear on how banks will be recapitalized to help boost financial market confidence, he said.
“The worst decision in this environment is indecision,” Kganyago said.
--Editors: Nasreen Seria, Ben Holland
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