S/Africa central bank chief rules out defence of rand

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Lesetja Kganyago, South Africa's Reserve Bank Governor

• But governor fears for economy amid emerging market turbulence

South Africa’s central bank chief has voiced concern about emerging market turbulence if volatility over the Chinese economy continues, but has ruled out intervening to prop up a weak rand.

The South African Reserve Bank (Sarb) issued a statement on currency volatility this week, saying it “may consider becoming involved in foreign exchange markets to ensure orderly market conditions”.

But in an interview with the Financial Times, however, Lesetja Kganyago, the bank’s governor, said it was not looking to defend the currency, which fell to record lows against the dollar this week. The central bank would get “involved” only if it felt the need to use its “power of persuasion” to ensure there was sufficient liquidity in the rand foreign exchange market.

“I’m ruling out intervention to try and defend a level of the currency,” he said. “To the extent that the depreciation of the rand is driven by fundamentals, no amount of central bank involvement, or even intervention, will stem the depreciation of the currency.”

However, he conceded he was “very” worried about South Africa’s economic outlook.

Data this week revealed the economy contracted in the second quarter of this year, as the country suffered a crippling power shortage, the collapse in commodity prices, rising costs and weak consumer and investor confidence.

“There are red lights flashing and I think that policymakers will be spurred into action,” he said. The Sarb’s forecast of 2 per cent growth for the year was “definitely at risk”. Even 2 per cent growth is far below the level the country needs to tackle widespread unemployment and poverty.

By ANDREW ENGLAND

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