Sarb: We’re not meddling

RAND’S PLUNGE: ‘SMOOTHER PATH’ SPARKS INTERVENTION TALK

Political turmoil knocked the rand for seven percent last week, but the smooth and steady decline has highlighted the role of the Reserve Bank during currency crises.

The South African Reserve Bank (Sarb) has denied intervening to defend the rand last week, as political events around Pravin Gordhan’s removal as finance minister buffeted the currency.

“The Sarb policy approach is not to intervene in the foreign exchange market with the objective of influencing the exchange rate of the rand towards a particular range or level,” Daniel Mminele, deputy governor of the Sarb, said.

Smooth decline

However, the currency’s smoother-than-expected decline has bred suggestions that someone is intervening.

The rand declined by more than 7% against the dollar in the week after the presidency abruptly summoned Gordhan and his former deputy, Mcebisi Jonas, from an investor roadshow in London.

That’s worse than the aftermath of former finance minister Nhanhla Nene’s sudden replacement with relatively unknown ANC lawmaker Des van Rooyen in December 2015.

“In the past, when there was a crisis, we could easily see the rand gapping by 20 cents to 30 cents. But [Thursday] night was different, it weakened by one or two cents at a time. It was gradual and much smoother, which suggests that there was participation in the market to provide liquidity,” said Dawie Roodt, director and chief economist at the Efficient Group.

He said it was likely that the central bank and banks, whose share prices move with the currency, provided liquidity by buying and selling the rand.

“They did not step in – it’s nothing special – they have always been there. They’re just making sure that there are no erratic movements in the currency,” Roodt said.

“I’m not criticising them. I think it’s a sign of a well-functioning market, because the decline was so gradual. They weren’t fighting it, they were just providing liquidity,” he said.

Gary Booysen, a portfolio manager at Rand Swiss, also suspects some form of intervention.

“The Sarb could be intervening, and it would be prudent for them to do so, to stabilise the currency in the short term. It seems like institutions had contingency plans and were prepared. They’ve seen this movie before,” he said.

Booysen said the data would tell. He felt the reaction should have been far more precipitous.

But Andre Cilliers, a currency expert and director at TreasuryOne, said the rand reacted to Gordhan’s firing in a similar fashion to Nenegate.

When compared with Nenegate, Cilliers said, the period of rand volatility might be shortened and the currency might pull back sooner, as opposition against Zuma mounts.

It seems like institutions had made contingency plans and were prepared. They have seen this movie before.

Gary Booysen Portfolio manager Rand Swiss

‘Political suicide’

“The president has, in this move, committed political suicide, as he has split the ANC down the middle,” he said.

JustOneLap founder Simon Brown said it was unlikely that the central bank intervened.

“The forex market is bigger than the Sarb and traders would go against them,” he said.