The volatility of South Africa’s rand could be negative for long-term growth, but for now the currency’s recent fluctuation should not upset financial stability, the country’s Reserve Bank said on Friday.
In its latest financial stability review, the bank also repeated its concern about high levels of household debt, possibly signalling more interest rate hikes are immiment, since the bank has cited this as a major risk to inflation.
The rand’s sharp retreat against the greenback this year has also been highlighted as a threat to inflation but the bank said on Friday the domestic currency’s volatility did not pose an immediate risk.
”High currency volatility, if sustained, could be negative for long-term economic growth due to the less certain operating environment for importers, exporters, borrowers and lenders,” the bank said in a report that covers the six months to June.
”But overall, given the underlying reasons for the changed market conditions, the volatility of the rand is well contained and is not in itself a source of concern for financial stability.”
The rand has been through a choppy patch over the past few months, tracking troubles across emerging markets. It stumbled to a three-and-a-quarter year low of 7,97/dollar in October as investors also fretted about South Africa’s huge current account gap.
The rand has since recovered, thanks in part to perky commodity prices and the appeal of rising interest rates in Africa’s wealthiest economy. The local currency was little at around 7,2260/dollar after the central bank statement.
The bank also said the country’s level of household indebtedness remained high by historical standards and needed to be monitored.
”The level of household indebtedness remained high by historical standards … growth of household debt needs to be monitored, taking into account the moderate increase in interest rates recently,” it said.
South African household debt levels have soared over the past couple of years as consumers enjoyed the lowest interest rates in over two decades.
The bank has raised its key repo rate by a total of 150 basis points since June to 8,5% as it battles to tame mounting price pressures, which it blames largely on rampant consumer demand. – Reuters