MICHAEL METELITS, Johannsburg | Tuesday 11.30am.
PROVISIONAL figures from the South African Reserve Bank indicate that South Africa’s gold and foreign exchange reserves rose by 1,7% to R35,7-billion at the end of July, according to a release on Tuesday. The reserves stood at R35,1-billion at the end of June.
The use of foreign credit lines dropped significantly to R15,2-billion at the end of July compared to R16-billion at the end of June.
While these figures are good, they might have been better.
Rudolf Gouws, chief economist at Rand Merchant Bank, sees the appreciation as a factor of rand weakness. “The reserves barely grew in dollar terms,” he says, “the increase was mostly the result of rand weakness over the month.”
Tony Twine of Econometrix agrees that rand weakness is “part of the mix”, but thinks it’s a small part, and tentatively includes foreign purchases of Old Mutual shares as another factor. “It’s not quite clear how much of those purchases are on-shore and how much off-shore,” he says. Nonetheless, Gouws believes the surplus is being handled appropriately. “The rise in the reserves mght have been greater had the SARB not set out to reduce the forward book,” or the total of outstanding foreign currency liabilities, which grew massively during the defense of the rand last year.
Further, the SARB reduced foreign lines of credit during the month, improving the country’s position in the eyes of foreign investors. “Foreign capital flows have continued, perhaps not at the level we’d like, and not the type we’d like,” Gouws says. He means they have tended to be financial flows, which come and go quite quickly and easily, rather than “real” or more fixed investment.
Twine agrees that debt reduction is part of a long-term trend at the Bank, and one which improves investor confidence. “Use of foreign credit lines has been coming down for nine months,” Twine says, and that can only improve the balance sheet for overseas players.