Business

No rand intervention: SARB

5 November 2009

The South African Reserve Bank's policy remains that of no intervention in the foreign exchange market, says deputy governor Daniel Mminele.

Emerging market currencies had appreciated significantly recently, with the rand being no exception, Mminele told the Spire Awards ceremony at the Johannesburg Stock Exchange on Tuesday evening.

"A currency remaining at non-competitive levels for too long might have adverse consequences for the real economy," he said.

He said some countries had opted to deal with currencies perceived to be too strong through a combination of verbal and actual market intervention.

Brazil, in addition to previous measures, had also recently imposed a two percent tax on capital inflows into both equity and bond markets to contain short-term capital flows and to reduce any further upward pressure on the currency, he said.

"The appreciation in emerging market currencies, including the rand, has been mostly driven by external factors, such as increased global liquidity, the depreciation of the US dollar and renewed investor-appetite for more risky assets."

Mminele said domestic factors, such as relatively strong macroeconomic fundamentals and wider interest rate differentials, had also played a role.

"These gains, unfortunately, increase the likelihood of an uneven economic recovery."

While the monetary and fiscal authorities in South Africa had at times expressed concern about the impact of the appreciated currency on the overall macroeconomic balance, Reserve Bank policy remained that of no intervention in the foreign exchange market with the objective of managing the currency, Mminele stressed.

The floating exchange rate regime had helped to cushion South Africa from more severe effects of the global crisis, he said.

"The Bank will, within the broader context of policy co-ordination with the National Treasury, continue with its strategy of accumulating foreign exchange reserves when market conditions are conducive," he said.

Over the past year, reserves accumulation had been constrained by volatility in the foreign-exchange markets, the level of global risk-aversion, and cost considerations.

More recently, Mminele said, conditions in the foreign exchange markets had been somewhat more favourable, allowing the Reserve Bank to increase its purchases of foreign exchange in a responsible manner.

Sapa