Too much rand volatility could cause investor uncertainty and a delaying of investment decisions which will in turn adversely affect economic growth and job creation‚ International Monetary Fund (IMF) officials say in a working paper.
Rand volatility was mainly driven by commodity price volatility‚ and global market volatility‚ as well as domestic political uncertainty‚ the paper noted.
While SA could not control commodity price volatility or global financial market volatility‚ it could further strengthen its buffers‚ such as international reserves‚ and reduce external vulnerabilities which should reduce the susceptibility to volatility‚ the IMF officials said.
On domestic political uncertainty‚ the paper suggested that the perception of political uncertainty was something the government could influence “in the way it develops and implements economic policy‚ as well as the way it communicates economic policy decisions”.
Understanding what contributed to foreign exchange rate volatility was an important first step to assess whether there was a role for economic policy to reduce this volatility within the existing foreign exchange regime‚ the working paper said.
The working paper was compiled by Nasha Maveé‚ Roberto Perrelli‚ and Axel Schimmelpfennig. The latter was until recently the IMF’s senior resident representative in SA.