OWN CORRESPONDENT, Johannesburg | Monday 9.30am.
ALL eyes will be on the rand on Monday, after the currency touched fresh lows against the dollar last week.
It was trading around R7,03 to the US currency in early trade on Monday.
But Reserve Bank governor Tito Mboweni said on Friday it is important for the bank not to overreact to the rands weakness by raising interest rates too quickly.
”Too quick a tightening of monetary policy could endanger the growth prospects of South Africa and encourage an outflow of capital. This would put greater and more lasting pressure on the exchange rate of the rand with important consequences for inflation,” Mboweni said in a prepared speech.
The rand hit a record low of R7,17 to the dollar on Tuesday, but had recovered to around R7,02 late on Friday, helped by comments on Wednesday from President Thabo Mbeki, who said he will not tolerate a Zimbabwe-style land grab.
Echoing comments from independent economists, Mboweni noted that the rand’s steady decline so far in 2000 is due in part to conflicts in neigboring African countries — including Zimbabwe — in addition to the dollar’s strength.
If those factors were taken into account, it seemed unlikely that tightening monetary policy will stabilise the foreign exchange market, he said in a dinner presentation to bankers.
But he stressed that the bank will closely monitor the markets to guage the effect of recent volatility on inflation, which it aims to cut to between three and six percent by 2002.
”If signs do emerge of increased inflationary pressures arising from the depreciation of the exchange rate of the rand, the Reserve Bank will not hesitate to take appropriate measures,” he said. — Reuters