Business Day (Johannesburg)
Mariam Isa
5 November 2009
Johannesburg — RAND volatility stemmed from external shocks, and had benefits as well as drawbacks for SA, an International Monetary Fund (IMF) official said yesterday.
Alfredo Cuevas, IMF senior resident representative in SA, said experience with bouts of volatility in the unit had helped teach local companies to avoid risky exchange-rate exposures.
At the same time, the depth and liquidity of SA's capital markets gave the corporate sector tools it could use to hedge against sharp rand movements.
"In the context of this economy, the volatile exchange rate is challenging but manageable for the corporate sector," he told Business Day yesterday.
"Having a floating exchange rate creates the right incentives for people to limit their exposure to exchange-rate risk."
The rand scaled a 14-month peak at R7,22/ last month, after lurching to a 6½ -year low at R11,87/ a year ago in response to the global financial crisis.
Yesterday, it rallied more than 2% to R7,66/ as gold climbed to a new record and global risk appetite picked up.
Some traders said the unit was also buoyed by comments from Reserve Bank deputy governor Daniel Mminele, who said the Bank would not try to manage the rand's exchange rate.
Rand gains increased the likelihood of an "uneven economic recovery", he said in a speech on the Bank's website yesterday. But the Bank's policy "remains that of no intervention in the foreign exchange market with the objective of managing the currency."
Finance Minister Pravin Gordhan said last week he was concerned at rand strength, which is widely seen as eroding the competitiveness of local exports.
In its medium-term budget, the Treasury said that a "stable and competitive exchange rate" was important for growth.
Cuevas said the flexible rand exchange rate helped SA withstand external shocks that hit many of its emerging-market peers far harder.
"This flexibility is one of the strengths of the SA economy," he said. Mminele made similar comments in his speech.
The floating exchange rate "helped to cushion SA from more severe effects of the global crisis".
But he said more favourable conditions in global markets would enable the Bank to increase foreign- exchange purchases "in a responsible manner". This was likely to help curb rand gains. In the past year, the Bank's accumulation of reserves was constrained by volatility in global markets, global risk aversion and cost considerations, Mminele said.
Antoinette Sayeh, director of the IMF's Africa department, said SA took the right steps to deal with the global crisis. "We think the response to the crisis has been broadly appropriate," she said, referring to rate cuts and official spending.
"We are hopeful that as the global economy starts to recover there will be a recovery here," she said.
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