South African Reserve Bank governor Lesetja Kganyago says the latest developments in the United States which saw Donald Trump elected as the next president will have no bearing on South African monetary policy or interest rates.

Speaking at the release of the central bank’s last financial stability review report for 2016 here Thursday, he said the Bank did not react to specific events but rather the impact of those events.

“It’s a once-off event; it has no impact on interest rate trajectory. If it feeds itself through the exchange rate, what are the dynamics then in terms of the domestic price formation and to the extent that is feeds itself into price formation, and is sustained and leads into the secondary effect, the monetary policy will react. So we don’t react to an event but the impact thereof.”

Kganyago also highlighted issues around the country’s possible credit downgrade. He said the economic and fiscal outlook for South Africa, coupled with the political risk in the country continued to increase this likelihood. He maintained that in the event of a downgrade, the country might experience short-term losses in the currency markets as well as capital outflows.

Concerns have been raised about a possible credit downgrade to sub-investment grade by international rating agencies, mainly because of the country’s deteriorating economic prospects, the heightened political risk, low business confidence levels as well as an increase in in government debt. The Reserve Bank said that adding to all these was the slow implementation of the National Development Plan.

Ratings agencies will review the country’s credit rating next month.

Meanwhile, the central bank said for the period under review, consumers and most households had remained under pressure with their disposable income moderating somewhat. As a result of this, savings had declined with a bigger portion of income going to servicing debt.

The central bank also indicated that it would continue to monitor liquidity levels, which are reflected in the fluctuations in the exchange rate. Since the second half of 2016, the Rand has been vulnerable to investor sentiment, mainly as a result of the deteriorating conditions in the country and expectations of a continued normalisation of monetary policy in the US.


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