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15 Oct 2001 00:00
Pretoria | Monday
THE South African Reserve Bank said on Sunday that it was ready to take “firm steps” against currency trading which was inconsistent with existing rules and regulations.
Reserve Bank governor Tito Mboweni said in a statement the September terror attacks on the USA and the ensuing international tension and conflict had had a negative impact on financial markets world-wide.
“In particular, the recent volatility in the domestic foreign exchange market is of concern to the authorities since the interests of South Africans and non-resident investors are of paramount importance,” Mboweni said.
He said the Reserve Bank no longer had an intermediate policy regarding the exchange rate or growth in the monetary aggregates because it had adopted an inflation-targeting monetary policy framework.
“The authorities are committed to continue allowing the value of the rand to be determined by the market, but are concerned that excessive volatility in the foreign exchange market negatively influences inflation, business decisions and the economy as a whole.”
This concern, he said, necessitated firm steps against irregular trading activities regarding the currency.
“The enforcement of existing rules serves to ensure that only legitimate transactions take place in the foreign exchange market.
“This does not restrict, for example, the ability of a non-resident investor to either hedge or repatriate the sale proceeds of an investment in South Africa.
“It does, however, exclude the financing of short rand positions in the domestic markets, which is consistent with the requirement that domestic borrowing by non-resident investors is subject to certain restrictions.”
Mboweni said this should not be seen as an attempt to put a short reign on the activities of banks. It was just to ensure that they stuck to the existing rules and regulations.
The net open foreign currency position declined from US23,2-billion at the end of September 1998 to US4,8-billion.
Mboweni said this created a negative perception and the Reserve Bank had to reduce the position by buying foreign currency in the domestic foreign exchange market.
This step, he said, might have contributed to the depreciation of the rand over this period.
Because the net open foreign currency position (NOFP) was now at a more comfortable level, the Reserve Bank was in a position to alter its approach to dealing with the NOFP.
“In future, the Reserve Bank will not intervene by purchasing foreign exchange from the market for purposes of reducing the NOFP.
“The NOFP will be expunged from cash flows derived from the proceeds of Government’s offshore borrowings and privatisation.”
Mboweni said a special monthly report on the NOFP would no longer be published. The information would in future be put on the Reserve Bank’s internet site.
He again emphasised that authorities were committed to gradually relax exchange controls. - Sapa
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