Reserve Bank doesn't see disruption from global policy normalisation

South African financial markets are unlikely to be severely disrupted as global central banks normalise policy, and a balanced inflation outlook means domestic interest rates can stay low, governor Lesetja Kganyago said.

Kganyago said in an interview on Thursday that even if capital outflows did materialise as other central banks taper asset purchases or raise rates, the SA Reserve Bank's focus was on inflation.

“Our inflation is contained. Monetary policy will not come with a stance that tries to stem capital outflows. That's not our reaction function ... For as long as inflation on a forward-looking basis is contained, there is no need to adjust policy,” he said.

The central bank slashed lending rates by 300 basis points to a record low of 3.5% in 2020 to soften the impact of the Covid-19 pandemic.

But it has kept them on hold at its last four policy meetings.

Central banks in other emerging markets like Turkey, Russia and Brazil have recently raised lending rates, partly to fight higher inflation. There are indications that the US Federal Reserve and other developed market central banks are moving closer to a time when they could tighten policy.

Kganyago said he believed the high yield on South African bonds would keep investors interested.

“Foreign investors are well-rewarded in South Africa at the moment. Our bond yields are significantly higher than bond yields in the advanced economies, and we are higher than many emerging market economies in real terms,” he said.

- Reuters