Johannesburg - Policy makers will only respond to changes in the exchange rate if they could cause inflation to rise, said South African Reserve Bank (SARB) governor Lesetja Kganyago.
“Our approach in South Africa has been and continues to be that we do not react to the first round effect of depreciation or appreciation of the currency. We will only act to the extent that we think the depreciation of the currency would lead to a rise in inflation,” he said at a forum in Washington on Wednesday.
Kganyago spoke ahead of semi-annual meetings of the International Monetary Fund and World Bank, where finance ministers and policy makers will gather to discuss potential threats to the global economic expansion.
He noted that rising interest rates in developed nations may prompt capital to flee emerging markets and cause their currencies to weaken. Currency depreciation can fuel inflation by raising the price of imports.
Africa’s largest economy has managed to reduce some of its key vulnerabilities such as the size of its current-account deficit as a share of the economy, he said. As a result, Kganyago said the bank has some “breathing space” should risks to its inflation outlook - such as currency movements or a spike in oil prices - come to fruition.
Inflation fell to a seven-year low last month with prices gaining an annual 3.8%, well within the Reserve Bank’s target range of 3% to 6%. The rand has appreciated around 4% so far this year.
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