Sarb prepared to act to protect rand

Johannesburg - The South African Reserve Bank is aware of the inflationary effects of the rand's recent fall and is prepared to act to protect the currency's value, deputy governor Daniel Mminele said on Wednesday.

In a speech to investors in New York, Mminele said it was important that the bank did "not allow any doubting of its preparedness to act when necessary and in keeping with the commitment to its primary objective".

His remarks echo those of Governor-in-waiting Lesetja Kganyago, who has stressed repeatedly since his appointment by President Jacob Zuma on Monday that the bank's constitutional objective is first-and-foremost to contain inflation and stabilise prices.

The rand fell more than 5% against the dollar in September amid concerns about South Africa's ability to finance its large budget and current account deficits when the US Federal Reserve starts to raise interest rates, expected next year.

Inflation is already above the top end of a 3-6% target band, but the bank has been loathe to tighten policy too quickly because of a stagnant domestic economy, which is expected to grow at less than 2% his year.

Despite the growth concerns, Mminele said a gradual tightening cycle started this year would continue.

"It would be reasonable to infer that a gradual, data-dependent, normalisation path remains appropriate," he said.

However, he also said the bank would continue its policy of avoiding significant, direct intervention in the currency markets.

"While the Reserve Bank does not target a particular level or range of the exchange rate, we are nonetheless mindful of the potential negative consequences of accelerated rand depreciation on the outlook for inflation," he said.

Kganyago will begin his term at the helm of the Reserve Bank on November 9.