Business

South Africa 'considering' rand action

23 July 2010

South Africa has taken no decision on weakening its currency, but the matter is under discussion, says President Jacob Zuma. The Organisation for Economic Co-operation and Development believes that rand strength is hurting the country's exports, and that currency volatility is provoking higher inflation.

"We have not taken any decision, but those are matters we are looking at," Zuma said at a press conference in Pretoria on Thursday. "Even economists don't have one view on the matter."

Zuma said that in his discussions with business people, some had argued for the weaker currency and others for a stronger. "Economists don't easily agree on matters ... but it is a matter that is occupying the minds of economists as well as the government."

He said discussions on the currency would form "part of some very special session" where many economic issues would be discussed.

Earlier this week, in its first ever assessment of the South African economy, the Organisation for Economic Co-operation and Development (OECD) recommended that the authorities lift South Africa's remaining foreign exchange controls, as well as intervene more actively against strength in the rand.

The OECD said the strong rand has hit South Africa's exports, and recommended that the government provide policy signals on the exchange rate and the direction of interest rates.

It said gains in the rand were hurting the country's ability to boost exports, while the volatility of the currency was provoking higher inflation.

Exchange rate volatility was a significant driver of inflation in South Africa, with rand depreciation having a bigger effect on prices than rand appreciation.

The OECD did not say what an appropriate level for the rand would be, but said that any steps to limit volatility should be done within the policy of keeping inflation inside a 3-6 percent target range.

Finance Minister Pravin Gordhan has remained firm on using the existing policy to let markets determine the value of the rand.

Sapa