An official inquiry into the rand’s historic plunge last year has backed South Africa’s policy of gradually easing foreign exchange controls, leaked documents showed on Thursday, boosting the volatile currency.
The rand rallied by nine cents to 10,18 to the dollar after the Business Day newspaper published the final conclusions of the inquiry, set up by President Thabo Mbeki this year after a business leader alleged ”dubious deals” had hit the currency.
”The Commission finds that generally, the administration of exchange controls appears to work well and is effective,” the final section of the report on the newspaper’s website said.
”The Commission finds that there is no call for the tightening of exchange controls nor is there an absolute call for the big bang approach to the abolition of exchange controls,” it said.
Officials from the Commission of Inquiry declined to verify the report, but informed sources said it appeared authentic.
Financial markets had been waiting to see what the inquiry had to say about the country’s remaining foreign exchange controls, after calls from many bankers to abolish them now.
Such a move which would be beneficial to the rand in the long-term, but would initially hit it hard.
”The fact that they recommend exchange controls be lifted gradually is seen as positive, near-term,” the head of foreign exchange at a major South African bank said.
He also said the report’s recommendation of a review of a 180-day limit for exporters to repatriate their earnings was also seen as supportive for the rand.
The report concluded that no single deal had been responsible for the rand’s 37% slump against the dollar in 2001 — which has been substantially reversed this year — and cited a myriad of factors behind the depreciation.
But it found that a decision by the central bank in mid-October to tighten existing exchange controls was among the factors which contributed to falls in liquidity and rising volatility in the market, playing a role in the rand’s slide.
This was because of perceptions that the step signalled a reversal in the government’s policy of liberalisation, it said.
”In future, all reasonable steps should be taken to ensure clear communication (by the central bank) to avoid the creation of such a perception.” – Reuters