Reserve Bank could intervene to stabilise financial markets
THE Reserve Bank may consider intervening in the currency market if risks to financial markets worsen following the rand’s collapse to a record low.
“In the event of developments that threaten the orderly functioning of markets or that may have financial stability implications, the SARB (Reserve Bank) may consider becoming involved in foreignexchange markets to ensure orderly market conditions,” the central bank said yesterday.
Assets
The currency of Africa’s most-industrialised economy weakened as much as 8.5 percent to an all-time low of R14.0682 against the dollar yesterday before trimming losses.
South African assets are under pressure as the price of commodities from platinum to iron ore retreat and concern mounts that economic growth is slowing in China, its top export destination.
“While we are concerned about excessive volatility, the SARB is committed to the exchange rate of the rand being set by market forces,” the bank said. This “does not suggest that the SARB is completely indifferent to exchange rate movements”.
The Reserve Bank has been reluctant to intervene in foreign-exchange markets to influ- ence the rand since it ran up debts of as much as $24 billion (R315bn) in 1998 defending the currency against speculators.
Former Reserve Bank Governor Tito Mboweni helped to eliminate the debt in 2003 and start building reserves, which now stand at $45.82bn.
The rand traded 1.3 percent lower at R13.1410 per dollar as of 6.36pm in Johannesburg.
African central banks from Nigeria to Uganda have been running down their foreign currency reserves and tightening monetary policy to prop up their currencies. South African policymakers raised the benchmark repurchase rate by 25 basis points to 6 percent on July 23, the first move in a year.
“There are two ways they could intervene,” Colen Garrow, the chief economist at Lefika Securities, said.
“One is to call an early unscheduled MPC (monetary policy committee) meeting and put rates up. And if they should do that, then the markets will be super volatile.
“The other alternative is to throw reserves at the rand and that’s not going to help.”