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Rand strengthens on S Africa central bank appointment

Lesetja Kganyago Image copyright Reuters

South Africa's president, Jacob Zuma, has named the former Treasury boss, Lesetja Kganyago, as the new governor of the country's central bank.

Following the announcement, the rand strengthened to a session high of 11.2590 against the dollar, after recently dropping to a six-month low.

Mr Kganyago is South Africa's tenth Reserve Bank boss.

He has pledged to continue the path of financial stability advocated by his predecessor, Gill Marcus.

Ms Marcus will leave the job on 8 November, when her five-year term expires.

She is the first woman to have held the position, and was widely respected during her tenure as governor for her ability to correctly predict global and domestic economic trends, as well as for her handling of the country's banking crisis.

'Highly regarded'

President Zuma expressed confidence in Ms Marcus's successor, saying Mr Kganyago "has wide-ranging experience in financial markets".

"He is highly regarded for his extensive knowledge and expertise of the South African and global financial systems."

The 48-year-old Mr Kganyago joined the Reserve Bank in 2011 as deputy governor, after serving more than seven years as head of the National Treasury.

He helped to steer South Africa to a budget surplus between 2006 and 2008.

"We view the decision as a positive for South African monetary policy going forward," said Jeffrey Schultz, an economist at BNP Paribas Cadiz Securities. He said Mr Kganyago was "likely to continue to pursue the bank's mandate of price stability while at the same time remaining sensitive to the challenges the economy continues to face".

In his new role, Mr Kganyago is expected to face constant pressure from trade unions who have in the past accused the Reserve Bank of not doing enough to help overcome the legacy of South Africa's racially-divided economy.

Mr Kganyago said he would "not disappoint", promising to pursue the bank's mandate "without fear, favour or prejudice".


Analysis from Lerato Mbele - Africa Business Report Correspondent

Image copyright Reuters

Lesetja Kganyago is regarded as a steady hand because of his decade-long experience in public service.

In May 2011, Mr Kganyago was named a deputy governor at the Reserve Bank, effectively shadowing the outgoing Gill Marcus for a period of three years.

In this role, he also sat on the Monetary Policy Committee, which makes all the decisions about interest rates and looks at how to manage inflation.

In general, there has been consensus on the committee about keeping interest rates low, which was seen as a way to stimulate growth in the South African economy.

The only significant change was in January 2014 when interest rates were hiked, in an effort to curb rising inflation.

Prior to his role at the central bank, Mr Kganyago was the director general of the Treasury for a period of seven years.

This means he led the day-to-day activities in the finance department during two economic cycles, the boom years following the 2004 elections and the bust caused by the 2008 global crisis.

His team is credited with ensuring that South Africa came out of a year-long recession fairly quickly, while at the same time keeping the country's debt low.

In a statement made shortly after his appointment as governor of the Reserve Bank, Mr. Kganyago has pledged to continue with the policy stance of the outgoing boss. This means keeping interest rates low, even if inflation rises further.

However there are challenges if he decides stays the course. The first is what to do with inflation? The August figures came in at 6.4% which is above the Reserve Bank's set limits. There may be pressure for him to act.

The second is that the South African rand remains weak after losing 6.9% of its value this year alone. The local currency, like that of other emerging markets, has fallen prey to speculators as a result of the decision taken by the United States Federal Reserve to withdraw stimulus in its economy.

Despite that, Mr Kganyago must remember that the key of the mandate given to the Reserve Bank is to protect the currency. That will add more pressure to increase interest rates in the near future.

The third problem he will have to tackle is the sluggish economy. Growth in South Africa has fallen below the 2% mark, and there are even fears the country could tip back into recession.

The new governor will have to decide whether to help stimulate higher growth by keeping interest rates low, so that consumers can spend more, or to let things happen naturally.

If he chooses one priority over another, he could face a difficult balancing act that will see inflation rising as a trade-off for growth slowly picking-up.


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