South African Reserve Bank Governor Gill Marcus said on Wednesday the continent’s largest economy was in a fragile recovery and the strong rand was hurting the country.
The rand has firmed by more than 28% since the beginning of last year, weighing on exports from the mining and manufacturing sectors that are key contributors to the economy.
“We’ve seen the [manufacturing and retail] numbers that have come out. They are not as good as they should be. We are in a fragile recovery,” she told a meeting in Johannesburg.
Data this week showed growth in manufacturing sector output and retail sales slowed unexpectedly on a year-on-year basis in August, raising the possibility of another interest rate cut.
The central bank has reduced the repo rate by 600 basis points to 6% since December 2008, taking lending rates to their lowest level in three decades.
Marcus said the rand had helped ease inflation and contributed to the bank’s decision to lower interest rates by 100 basis points this year, but it could be difficult to influence its value on the market to help the manufacturing sector.
“The size of the South African market is huge. When you are looking at what you can do , you have got to recognise the size of the market,” Marcus said.
More than $4-billion on average is traded on the rand on a daily basis and the bulk of that is abroad, according to Reuters data.
No quick fix
She reiterated that there was no “quick fix” to dealing with the flood of capital inflows into emerging markets, which have led to currency appreciations.
She said South Africa needed capital inflows to fund its current account deficit.
“We depend on foreign inflows. Our domestic savings … are nowhere near enough to be able to finance ourselves. That is a huge difference between us and other emerging markets.”
South Africa, unlike other emerging markets, has shied away from introducing a tax on capital inflows to help limit the currency’s gains. The idea did not get enough support at the African National Congress’s policy meeting in September.
Marcus said the country should look at other policies to support the economy and boost job creation.
South Africa has lost more than a million jobs since the beginning of last year, raising unemployment to 25,3% of the working force. — Reuters