Sarb may step in to stem rand's fall

August 25, 2015, 6:22am
Sarb governor Lesetja Kganyago. (Lisa Hnatowicz)
 

Sarb may step in to stem rand's fall

Cape Town - The South African Reserve Bank (Sarb) said late on Monday it may consider becoming involved in foreign exchange markets to ensure orderly price action.

The bank said it had maintained over many years its position of not intervening in the foreign exchange market.

“This position, however, does not suggest that the Sarb is completely indifferent to exchange rate movements,” it said in a statement.

It said threats to the "orderly functioning of markets or (developments) that may have financial stability implications", could require the bank to get involved.

“Developments in SA markets in recent days are largely a response to external factors, and market indicators have moved in line with those in other financial centres,” the Sarb said.

“From a monetary policy perspective, having previously indicated that the exchange rate represents a significant upside risk to inflation, the impact of exchange rate developments on the inflation trajectory will be considered in conjunction with other relevant factors.”

The Sarb's comments follow a sharp drop in the rand against major currencies on Monday, in line with other emerging market currencies and as global equity markets took a beating.

READ: Rand plunge creates inflation fear factor for Sarb

On Tuesday morning the currency was trading at R15.17/€ (-0.67%), R20.73/£ (-1.53%) and R13.15/$ (-2.12%), according to data from INET BFA.

The rand, which briefly touched R14.07/$ overnight on Sunday, has weakened 6.2% since the last Monetary Policy Committee meeting and 25% over the last year.

Emerging markets economist Peter Attard Montalto said late on Monday he does not think that the Sarb is really worried about the rand.

"They worry about the slow build-up of pressures into CPI and onwards into wages and expectation anchoring. But they do not care what number USDZAR is in itself. Hence, speed of adjustment and volatility is more important to them," he said.

He said it is unlikely that the Sarb would intervene with orderly markets during normal hours, as they are still nursing wounds from their 2001/2 experience of intervention, "which left deep institutional scars within the Sarb and a real risk aversion against intervention to anything but the most exceptional circumstances".

On the Sarb's statement on market intervention, Montalto said it is not new policy. He sees the comments more as a position statement than verbal intervention.

Fin24