JOHANNESBURG (Reuters) - South Africa's central bank is focused on combating inflation, with the exchange rate and reserves no longer central policy issues, Deputy Governor Xolile Guma said on Friday.
The comments follow release of a report by an international panel advising the government -- known as the Harvard Group -- which recommended that the central bank should intervene to ensure a "competitive" currency.
Guma said the bank had ceased intervention in 1998 after previous efforts to protect the rand led to billions of dollars in foreign exchange losses. He added the bank had made a public commitment not to attempt to influence the level of the currency, while still increasing reserves.
The main focus was monetary policy in the context of its inflation targeting framework.
"At present, the message which needs to be communicated is that of monetary policy in the context of inflation targeting -- exchange rate and reserve management issues have lost their centrality, important as they may remain," he said, in speech posted on the Reserve Bank's Web site.
Guma was speaking at a seminar in Zanzibar on central bank communication policies.
South Africa built up a negative net open foreign currency position of $23 billion in 1998 in a vain attempt to protect the currency. It then vowed to close the position and finally brought it into balance in 2004. Since then it has lifted net reserves to $33 billion.
The panel said in its report the Reserve Bank should adopt a strategy that pays more attention to the level and stability of the currency, to help boost growth. It should also be prepared to intervene to back up statements issued when the currency deviated from a desired level, it said.
The Treasury said on Thursday the report did not reflect government views and it had neither adopted nor rejected its recommendations.
Guma added that policy responses and communication from the central bank should deal with its primary focus.
"The tension caused by substantial deviation from the desired outcome, albeit on account of concatenation of external shocks of unprecedented magnitude, poses an on-going challenge with regard to time-consistent policy responses and with respect to communication," he said.
The Reserve Bank has raised its repo rate by 450 basis points to 11.5 percent since June 2006 to try to keep inflation within the 3 to 6 percent target band, raising the ire of trade unions and other left-leaning critics.
Inflation continues to accelerate, though, soaring to a more than five-year high of 10.1 percent year-on-year in March, driven by sharp increases in international food and fuel costs.
