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Marcus worries about rand

Jan 24 2013 17:01 Reuters

Reserve Bank Governor Gill Marcus. (AFP)

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Pretoria - Reserve Bank governor Gill Marcus on Thursday expressed concern about the level of rand and its volatility.

The rand, which fell through the psychologically key R9/$-level on Wednesday, is seen posing upside risks to the outlook on inflation.

"The rand exchange rate continues to pose an upside risk to the inflation outlook.

"The exchange rate has been impacted by the widening deficit on the current account on the balance of payments in 2012 and changing global and domestic risk perceptions, particularly relating to the adverse developments in the labour market and the downgrades by the various ratings agencies," she said after the first monetary policy committee meeting of the year.

The Sarb left its benchmark interest rate unchanged at 5.0% on Thursday, citing concerns about rising food prices and a depreciating rand exchange rate in a period of slowing growth.

Marcus said the current monetary policy stance was "accommodative and appropriate", while further monetary easing was constrained by upside risks to the inflation outlook.

All 23 economists polled by Reuters last week said the Reserve Bank's Monetary Policy Committee (MPC) would leave rates unchanged at 40-year lows, with 10 economists expecting the next move to be a 50 basis point hike in 2014.

The bank's inflation forecasts for this year deteriorated from the last MPC meeting two months ago, with CPI expected to average 5.8% in 2013 compared with a previous forecast of 5.6%.

Marcus said the forecasts did not take into account a new inflation basket which will be used from January and is expected to contribute to a marginal quickening of the inflation trend.

The Bank cut its economic growth forecasts to 2.6% for this year from a 2.9% expectation at the previous MPC meeting.

Strikes in the mining and farming sectors were also cited as risks to the bank's growth expectations.

The country has been plagued by months of violent labour protests which began in the mining sectors and hit everything from trucking to farms, causing three credit rating downgrades.

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