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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.
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