SA’s strong rand a worry: Gordhan

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South Africa’s government is concerned about the strong rand currency and would have liked to intervene more assertively in the market through accumulating reserves, Finance Minister Pravin Gordhan said on Tuesday.

The government this week denied a media report that it planned to “freeze” the rand at a predetermined rate. The unit had fallen sharply against the dollar on the report, which increased jitters among investors worried South Africa’s policies may be shifting to the left, Reuters reports.

 

The rand has gained about 25 percent against the dollar so far this year, raising concerns its impact on exporters could delay recovery from the country’s first recession in 17 years.

 

“We are concerned about the fact that the exchange rate is as strong as it is and we wish we had the capacity to, if you like, intervene in a more assertive way than we are able to do at the moment,” Gordhan told a media briefing.

 

“We will assist the South Africa Reserve Bank in whatever way we can to increase its current reserves from $40 billion to beyond whenever we have the capacity,” he told journalists prior to presenting a medium term policy statement to parliament.

 

Both the government and the central bank have previously said they are happy for markets to determine the exchange rate, but the bank has traditionally taken advantage of a stronger rand to build on foreign currency reserves.

 

Asked if the government would have intervened to override a market determined rate had resources allowed, Gordhan said:

 

“Hopefully we would have bought more reserves, and hopefully we can say to you next time we have $45 billion, not $40 billion.”

 

 The rand has in the last few years however been undermined by a large current account deficit, which soared to 7.4 percent of gross domestic product in 2008.

 

In its policy statement on Tuesday, the Treasury said pressure on the account had eased due to declining domestic expenditure and rising savings.

 

It said the shortfall would fall to 5.1 percent of GDP in 2009 before rising again to 5.7 percent the following year.

 

“The improvement in the current account is likely to be temporary since demand for imports will rise as domestic demand recovers and inventories are rebuilt,” the Treasury said.

 

Gordhan did not mention the report on freezing the currency, a move which would suggest a shift towards the left to appease labour union and communist allies which helped the ruling ANC party retain power in an April election.

 



President Jacob Zuma has made some changes to the way cabinet operates, and the resignation this week of a senior policy maker seen as one of the architects of market-friendly policies, has fuelled worries that more left-leaning officials were gaining prominence.