The South African Reserve Bank (SARB) is staying calm amid the recent depreciation of the rand. In a private investor meeting on Tuesday, David Fowkes, a member of the SARB Monetary Policy Committee (MPC), reassured participants that the currency’s weakening isn’t expected to fuel significant inflationary pressures.
The rand, often seen as a benchmark for emerging market currencies, has dropped nearly 8% against the dollar since November. This decline coincides with global risk-off sentiment, sparked by fears of U.S. tariffs and diminishing expectations for Federal Reserve rate cuts.
Fowkes’s remarks offer a glimpse into the central bank’s measured approach, even as investors prepare for the SARB’s rate-setting meeting on January 30.
Currency
The rand’s recent dip is part of a broader trend affecting emerging markets. Since the U.S. presidential election, global investors have scaled back investments to riskier assets, causing currencies like the rand to lose ground against the dollar.
However, Fowkes suggested this currency weakness doesn’t pose a significant inflationary threat, emphasizing the central bank’s commitment to anchoring inflation expectations within its 3%-6% target range.
Inflation
Despite the currency’s slide, SARB maintains that its monetary policy stance remains restrictive. Since September, the bank has reduced its key interest rate by 50 basis points to 7.75%. However, the benchmark rate still sits 4.85 percentage points above annual inflation, reflecting a cautious approach to further easing.
This tight stance is intended to keep inflation expectations steady at the midpoint of the target range, which Fowkes highlighted as a key focus for the MPC.
Monetary Policy
Forward-rate agreements indicate limited expectations for rate cuts, with markets pricing in just one 25-basis-point reduction in 2025. Governor Lesetja Kganyago has consistently signaled that the bank will adopt a careful approach, prioritizing inflation control over aggressive easing.
The SARB’s models may suggest room for rate cuts, but policymakers appear more concerned with safeguarding the credibility of monetary policy and ensuring inflation remains stable.
What’s Next?
As the SARB gears up for its first rate decision of the year, all eyes are on how the MPC balances its inflation-targeting mandate with the need to support growth. Investors expect only modest adjustments, reflecting the cautious tone struck by Fowkes and Governor Kganyago.
The central bank’s deliberate approach underlines its commitment to long-term economic stability, even as global uncertainties and currency fluctuations present short-term challenges.
SOURCE – LINK
FAQs
What caused the rand to weaken?
The rand weakened due to global risk-off sentiment and reduced Fed rate cut expectations.
Is the rand’s weakness driving inflation?
No, the central bank downplayed its impact on inflation.
What is SARB’s inflation target?
The SARB targets 3%-6% inflation, focusing on the midpoint.
What is the current SARB interest rate?
The key interest rate stands at 7.75%.
Will SARB cut rates in 2025?
Markets predict one 25-basis-point rate cut in 2025.
