STUART GRAHAM, Johannesburg | Friday
RESERVE Bank governor Tito Mboweni’s frequent statements that the bank would not intervene in foreign exchange markets to support the rand helped the currency’s fall, the commission into the decline of the rand heard on Friday.
Econometrix chief economist Dr Azar Jammine said under Mboweni’s leadership, the SARB was obliged and willing to follow the government’s policy of inflation targeting, which meant the bank no longer had any interest in managing the level of the exchange rate.
”This, combined with the low level of reserves and the commitment to eliminating the net open foreign position, led speculators to believe that there was relatively little risk in their taking a position against the rand,” Jammine said.
”This led to heavy criticism being levelled at the SARB for opening its mouth too often on the intervention issue and thereby eliminating any element of uncertainty which might have dissuaded speculators from selling the rand short.”
He said as a result the bank announced it would stop making pubic statements about the foreign exchange market, but this happened just as the rate of depreciation of the rand began to accelerate in November and December.
”Ironically it was possibly just the wrong time for the SARB to commit itself to keeping totally mum on the subject. In so doing it may have added fuel to the fire of speculation.”
He also told the commission that the bad mouthing of South Africa by emigrants had created enormous negative sentiment about the country and affected the rand.
Jammine said many of the emigrants were professionals who were able to influence overseas investor sentiment.
”Their motive for bad mouthing is simple they are driven to justify why they have left the country,” he said.
”Indeed, one might speculate that this phenomenon is more prevalent amongst those who have been relatively unhappy since emigrating than those who have taken their new environment in their stride.” – Sapa