Reserve bank OK with weak rand

Evan Pickworth

Evan Pickworth

The degree of intervention in the foreign exchange market in last month by the reserve bank was the highest for a year-and-a-half, highlighting that the bank might be happy with a rand at more than R7 to the dollar.

"The very strong levels of reserve accumulation over the past three months are welcome, and underscore the belief that the reserve bank is comfortable with a weaker rand, at levels of seven to the dollar or weaker," said independent economic analysts RLJP.

In data released yesterday, gross reserves were reported to have increased by $574million in December to $25,61billion, mainly because of a build-up of $596million in foreign exchange reserves, with gold reserves falling by $22million because of a lower dollar gold price last month.

But net reserves increased by about $817million to $22,99billion. This was mainly because the government repaid a large portion of its outstanding foreign loans. In just three months, the value of outstanding loans has fallen from $3,5billion to $2,75billion.

Meanwhile, Nedbank's group economics unit said: "The upward trend in reserves implies that capital inflows have been exceeding current account shortfalls. Though this should be comforting from a monetary policy perspective, other recent indicators such as money supply and credit growth have been less comforting."

It said the monetary policy committee would weigh these and other indicators at their meeting on interest rates next month.

"A continuation of recent trends in key indicators will increase the risk of further tightening, whereas any new evidence of a change in consumer behaviour will help to ease the pressure," it said. - I-Net Bridge