Johannesburg - The South African Reserve Bank governor Gill
Marcus said on Monday there was little room to cut interest rates, and that the
bank had to be mindful of higher inflation despite the rand's volatility on
foreign exchange markets.
The bank has left interest rates unchanged at 5.5% for 16
months after cutting them by 650 basis points over a two-year loosening cycle
that ended in November 2010.
In a speech at a business briefing in Zurich, Marcus said
the domestic inflation trend suggested there was little scope for further
accommodative monetary policy, if all other factors remained the same.
"The expected inflation trajectory suggests that there
is limited, if any, room for further monetary accommodation at this
stage," she said, adding that significant changes to factors such as the
domestic growth outlook and the global economy could alter the situation.
The bank expects inflation, at 6% in March, to return to
within its 3% - 6% target range by the end of the year "on a sustainable
The next policy rate decision is expected on May 24.
Rand volatility challenge
Capital inflows have caused increased volatility in emerging
market currencies such as the rand as investors have chased higher yields.
Marcus said the inflows were useful to emerging markets but
that the volatility they caused on foreign exchange markets made them difficult
"It is the extreme volatility, brought about by the excessive
capital flows, that creates problems for macroeconomic management," she
Reiterating that the bank does not target a level of the
rand exchange rate, Marcus said the rand had remained volatile despite the
country having a bigger stock of foreign exchange reserves which are seen as a
bulwark against volatility.
South Africa's economic recovery "looks to be
sustained" but was dependent to a large extent on global developments, she