S. African rand remains volatile despite recent gains

The South Africa rand remains volatile despite its recent appreciation against major currencies, South African Reserve Bank (SARB) Deputy Governor Daniel Mminele said on Wednesday.

He said his country was keeping an eye on the global sentiments, the US's Fed policy expectations and the local pressures, particularly the impending ratings downgrade in the last quarter.

The deputy governor noted that a possible downgrade would exert pressure on the local currency.

The SARB is battling to curtail the stubborn inflation which has been hovering above its targeted band of three to six percent.

"Some of the favourable factors that contributed to the decision to keep interest rates unchanged will be sustained and the bank would not hesitate to act when deemed appropriate," Mminele told reporters in Johannesburg.

According to the SARB, consumer inflation would return to targeted band only in the third quarter of 2017.

Mminele noted that the rand had been supported by the improvements in commodity prices and the unexpectedly large trade surplus recorded in May.

He said the main risks to the inflation outlook were the weaker rand, with average wage increases outpacing both inflation and productivity gains, elevated food price inflation, and potentially higher oil prices, if global demand recovers.

On the economic front, Mminele said he was concerned about the sluggish economic growth in the country.

The SA's economy contacted by 1.2 percent in the first quarter of 2016, and is expected to grow less than 0.8 percent in the second, third and fourth quarters. The Bank sees zero economic growth in 2016.

Despite the slow growth, Mminele said a technical recession (two consecutive quarters of economic contraction) was unlikely because of positive economic data thus far for the second quarter, in particular in mining and manufacturing.

Netbank economist Busisiwe Radebe told Xinhua on Wednesday that despite positive production data in May, general conditions were expected to remain subdued in 2016.

She believes that manufacturing production was likely to be hard hit by low commodity prices that were unlikely to "reverse convincingly" in the next few months.

Another economist echoed her sentiments. "The manufacturing sector remains fragile, and in this environment, we hope to see as many jobs retained in the short term as possible," First National Bank senior industry analyst Jason Muscat said. Endit