November 28, 2018 / 2:46 PM / 21 days ago

South African central bank expects volatile rand in 2019

JOHANNESBURG, Nov 28 (Reuters) - South Africa’s rand will remain volatile in 2019, making monetary policy complicated and focused on long-term inflation factors rather than short-term market shocks, central bank Deputy Governor Daniel Mminele said on Wednesday.

Mminele said the bank expected the rand to average 14.50 against the dollar but trade would be volatile, forcing the monetary policy committee to remain flexible in its responses.

“We will continue to allow the exchange rate to absorb the initial shocks, and focus our policy actions on addressing second-round price effects,” Mminele said at a foreign exchange conference after the bank raised lending rates last week.

“It is important that policy decisions should not be informed by short-run market developments in either direction.”

The rand has slumped more than 20 percent against the dollar in 2018 since a sharp sell off of emerging market assets in April triggered by rising U.S. rates and worries about a trade dispute between the United States and China.

The South African Reserve Bank raised lending rates for the first time in nearly three years last Thursday, by 25 basis points to 6.75 percent, saying it could not risk waiting for risks to inflation to materialise before acting.

The bank targets inflation of between 3 and 6 percent, but has emphasised that it is more comfortable with consumer price growth closer to 4.5 percent, the mid-point of the range. Inflation came in at 5.1 percent in October. (Reporting by Mfuneko Toyana Editing by James Macharia and David Stamp)

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