JOHANNESBURG, May 20 (Reuters) - South Africa's central bank at its last policy meeting worked under the assumption that the rand's real exchange rate will depreciate by 4.25 percent in 2009 and be unchanged next year, Governor Tito Mboweni said on Wednesday.
In a speech prepared for a function to honour local economists, Mboweni also said that the prevailing global financial crisis has exposed the limitations of structural models used to analyse and make economic forecasts.
At the April meeting, the central bank cut its repo rate by 100 basis points to 8.5 percent, saying data pointed to a second consecutive quarterly GDP contraction in the first quarter of this year, leaving South Africa in its first recession in 17 years.
"At the April MPC meeting, the assumptions incorporated into the model included (that) growth in South Africa's trading partners is expected to contract by 2 percent (and) the real effective exchange rate is expected to depreciate by 4-1/4 percent in 2009," Mboweni said.
South Africa's rand currency
"Our models are unable to predict reliably the exchange rate during such periods where we have extremely volatile and unpredictable capital movements," Mboweni said.
"We must be aware of the limitations of models and the major challenges that face forecasters in this ever-changing economic environment," he added.