Eurozone Crisis Will Pose A Challenge For South Africa

05 March 2012 - Which Way to Pay

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Eurozone Crisis Will Pose A Challenge For South Africa

Lesetja Kganyago, Reserve Bank deputy governor has said that South Africa must be prepared to face further knock-on effects from the ongoing crisis in Europe. He warned that “reducing vulnerabilities must be a key priority for the monetary and fiscal authorities.” He stated that European banks would have to recapitalise and would, “reduce funding for emerging markets significantly.”

As a protective measure, South Africa would, “recognise its regulatory approach to strengthen the capacity of regulators to address sector-specific challenges that may arise in the future and enable appropriate responses in the event of shocks.” He said such an approach would allow the rand to cushion the impact on the economy from swings in inflows during crises.

Kganyago, central bank deputy governor has also said that South Africa needs to set policies that aim to reduce the volatility of the rand exchange as capital flows pose challenges to emerging market currencies.

Kyanyago said, “The capital flows challenge needs fresh thinking. Over the medium term, to moderate the real exchange rate, we need fiscal and monetary policy settings that reflect that policy objective and seek to achieve it.”

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