The depreciation of the rand is estimated to spike inflation well above the 6% target, but the move would be “relatively constrained”, SA Reserve Bank Governor Gill Marcus said on Thursday.
Speaking at the Bureau for Economic Research conference in Sandton, Marcus said this was probably caused by low growth and a “relative lack of pricing power in a number of sectors of the economy”.
Marcus’s speech came after the Reserve Bank released its Monetary Policy Review on Tuesday night, following the Monetary Policy Committee’s meeting in May.
“To date, the pass-through from the exchange rate to inflation has been relatively constrained, particularly compared to previous periods of high volatility and currency weakness.
“Also, it could be that the recent sharp moves in the exchange rate are seen to be excessive and a sign of overshooting.
“However, the longer these weaker levels persist, the greater the risk that the relatively benign impact on inflation will end,” she said.
Marcus’s comments come at the back of mixed reactions to unemployment figures and also on the outlook on economic growth.
Statistics South Africa announced last month that the Gross Domestic Product (GDP) rate slowed down to 0.9% in the first quarter of 2013 after it grew by 2.1% in the fourth quarter of 2012.
This was attributed to stoppages in production of gold, amongst others, due to labour unrest, which had a ripple-effect on exports.
This was followed by an announcement by the SA Revenue Services (SARS) that the trade deficit widened to R15.02 billion in April after more imports were recorded compared to March.
Last week, the rand hit a four-year low of R10.28 to the US Dollar, breaking through the Reserve Bank’s target of R10 to the Dollar.
On Thursday, Marcus said the depreciation of the rand would, according to the Reserve Bank’s estimates, raise inflation by 0.2 percentage points.
This would take the Consumer Price Index (CPI) to 6.1% in the third quarter of 2013, breaking the bank’s ceiling target of 6%.
Marcus said should the weak rand persist, the rise in inflation could hike the petrol price in July.
“However, the longer these weaker levels persist, the greater the risk that the relatively benign impact on inflation will end.
“Some prices are also impacted far quicker than others, for example, petrol prices, where the pass-through is very quick.
“We have been fortunate that the impact on petrol prices has been moderated to some extent by the weaker international oil price.
South African Government News Agency