South Africa’s central bank says weaker Rand major inflation risk

The depreciation in South Africa’s rand currency has been an important contributor to inflation and is a major risk to the CPI forecast, the central bank said on Monday.

In its latest monetary policy review, the Reserve Bank said the response to relatively low interest rates in Africa’s most industrialised economy had been disappointing, while investment growth had been subdued.

The bank, which hiked interest rates to 6.25 percent this month, reiterated that the priority for monetary policy was to keep inflation within a 3-6 percent target range.

It said the economic output gap remained negative, and that for this reason monetary policy continued to be accommodative.

“The real repo rate is still low in historical and comparative perspective, and somewhat below its estimated neutral level,” the bank added.

The rand fell to a new record low of 14.4600 after a wider-than-expected trade deficit which showed the gap widened to 21.39 billion rand (USD1.5 billion) in October.