/ 15 May 2001

Mboweni ‘confident’ on rand

OWN CORRESPONDENT, PRETORIA | Tuesday

SOUTH Africa’s central bank governor Tito Mboweni said on Monday in Pretoria the rand is not a one-way bet despite its steep depreciation last year.

“Notwithstanding the volatility in the exchange rate of the rand, we are convinced that there is every reason to be confident regarding the future path of the rand,” he said in a prepared speech to the domestic branch of the ACI, a global group for foreign exchange traders.

“Inflation is coming down slowly but surely and, of importance to you, by no stretch of the imagination can the rand be regarded as overvalued,” he added.

Mboweni gave no details on what level he thought the rand, which has firmed beyond the key R8/dollar level in the past week, should be trading at.

He noted that the rand had fallen by about 22,9% against the dollar in 2000 and a further 5,4% in 2001 so far, but had not done so poorly against a trade-weighted basket of currencies from South Africa’s key trading partners.

On this basis, the rand had depreciated by 12,5% in 2000 and only 0,9% so far in 2001, he said. But volatility had worsened, with the rand’s average one-month historical volatility 12,3% in the year to date, compared to an average of 9% in 2000 and 4,5% in 1997, he said.

Mboweni said factors behind the rand’s performance included the strong US dollar, concerns about South Africa’s ability to achieve higher and sustainable rates of economic growth, and, for a few months in 2000, political and economic instability in neighbouring Zimbabwe.

He said the central bank’s net open forward position (NOFP) — a measure of its uncovered foreign exchange exposure — had contributed to rand volatility but maintained the bank is committed to bringing it down.

“Our policy position is that we will continue to work the NOFP down as and when economic and financial conditions are favourable,” he said. Funds from privatisation proceeds, international borrowing and one-off capital inflows from the corporate sector would all be utilised for this end, he said.

“The exchange rate of the rand is far more of a two-way risk than many market participants realise,” he said.

The NOFP fell in April to $9-billion from $9,4-billion, its biggest unwinding in six months, on the back of inflows from a 500-million euro bond issue.

Mboweni also said that South Africa remained committed to gradual exchange control liberalisation but there were concerns about the “fickleness of international capital flows and … pure speculative transactions by non-residents in our markets.” – Reuters

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