South Africa’s rand has firmed to levels that may add to central bank concerns about the current account deficit and raise doubts about the wisdom of pushing through more interest rate hikes. Raising rates further could enhance South Africa’s carry trade credentials among investors hunting for higher yields, and so bolster the rand.
South Africans may hope the ruling African National Congress (ANC) finds new ways to fight social ills at its conference this week, but any policy debate will likely be overshadowed by a succession battle that has plunged the party into turmoil. Analysts say they expect closed-door meetings to focus on forming alliances ahead of a congress in December that will choose a new leader for the party.
South Africa’s public finances and economy have improved sharply but it faces severe challenges such as HIV/Aids and high unemployment which hold back a ratings upgrade, Moody’s Investor Service said. Last week, Moody’s revised the outlook on South Africa’s foreign currency debt ratings to positive from stable.
South African central bank Governor Tito Mboweni warned on Friday of a strong upward bias in inflation beyond high fuel and food costs, pointing to further interest rate increases. The Reserve Bank raised its key repo rate by 50 basis points to 9,5% on Thursday to help stem surging inflation and high consumer spending.
South Africa urged the United States on Saturday to abide by an agreement of the Group of 20 (G20) economic powers for an open and transparent appointment of the new head of the World Bank. South Africa is the current chair of the G20, which also includes the US.
South Africa’s central bank was closely watching whether another round of oil and food price increases widens inflation, and it would take action if this occured, Governor Tito Mboweni said on Wednesday. ”If we see second-round effects coming through it is prudent for the central bank to tighten monetary policy,” Mboweni said in a speech in Cape Town.
South Africa’s targeted inflation should remain within its range, but the target could be threatened by adverse developments and a poor response to past monetary tightening, the central bank said on Tuesday. In its latest monetary policy review, the Reserve Bank said it remained focused on keeping inflation within a 3% to 6% band.
South African manufacturing activity fell in April on slower growth in new-sales orders and output, while price pressures accelerated, the Purchasing Managers Index (PMI) showed on Wednesday. The PMI index fell to 57,9 on a seasonally adjusted basis after increasing to 60,5 in March, Investec, which sponsors the index, said in a statement.
South Africa’s current-account deficit swelled to 7,8% of gross domestic product (GDP) in the fourth quarter of 2006 on a surge of oil imports and higher service payments, the central bank said on Thursday. The shortfall widened from a revised 5,7% in the third quarter and 6,1% in the second quarter, bringing the deficit for the year to 6,4% of GDP, the highest yearly gap since 1981.
South Africa’s current-account deficit widened sharply in the fourth quarter of 2006 and the South African Reserve Bank will continue to monitor the shortfall and possible currency depreciation, Governor Tito Mboweni said on Tuesday. However, he urged the market not to draw ”inappropriate conclusions”.