SARAH BULLEN, Cape Town | Tuesday 11.10am.
GROSS provisional gross gold and foreign exchange reserves amounted to R32,7-billion at the end of February, up on January’s figure of R32,6-billion, the Reserve Bank announced on Tuesday.
In dollar terms, however, gross reserves declined by roughly $100-million from $5,4-billion to $5,3-billion at the end of February.
The utilisation of foreign credit lines at the end of February 1999 was unchanged at R18,0-billion.
The outstanding oversold forward book of the Bank was $24,4-billion, $300-million down from $24,7 billion at the end of January.
Economists said the reserve figures confirm the Bank’s policy stance of no intervention in the forex market. The fact that reserves did not increase confirms that the SARB is still cautious in their approach to the currency market. The lack of any significant appreciating currency pressures continues to force the Bank to stay out of the market on a net basis.
Said BoE financial holding company: “Although the rand-denominated gross reserves increased by R100-million, the fact that the rand/dollar exchange rate weakened from R6,05 to R6,18 during the month implies a $10- million decline in gross reserves.”
BoE stressed that a low level of reserves should not be seen as a sign of currency weakness. “This only applies in the case where the central bank attempts to support a given level of the exchange rate by utilising its foreign reserves,” it said.
With the Bank not directly intervening in the currency market, interest rates have become the main policy instrument to influence the exchange rate.
This means that if the SARB wants to accelerate the accumulation of reserves (to reduce the forward book), interest rates will have to stay relatively high to generate possible appreciating pressures.
But recent developments in the repo market, together with comments by Bank governor Chris Stals, suggest that neither the accumulation of reserves nor a relative strengthening of the currency are currently main drivers of the SARB’s interest rate policy.
This implies that the reduction in the forward book and the rebuilding of reserves will be a lengthy process. It also suggests that the Bank is not overly concerned with the level of the exchange rate, BoE economists said.