A virile South African rand on Wednesday shrugged off the news that the government had repaid almost R5-billion in January as it repaid $750-million six months ahead of its scheduled redemption on July 30 2004.
This followed the July 2003 redemption of $750-million, which had been the first early redemption of a foreign loan.
“The government has never repaid a foreign loan ahead of its maturity, while until recently, the [South African] Reserve Bank was not buying dollars in the foreign exchange market. Both of these factors should have led to rand weakness, but the rand just powers ahead, defying predictions of a weakening in the second half of the year,” Colen Garrow, an economist at Brait, said in August 2003.
The South African Reserve Bank (SARB) has been an active buyer of dollars in the foreign exchange market to reduce its forward book. This buying is reflected in the increase in its positive net open forward position. In August 2003 the SARB bought $576-million, followed by $351-million in September, $896-million in October, $1,079-billion in November and $1,005-billion in December.
“Prudent management of reserves in an environment in which dollar weakness and commodity strength support the rand has enabled the SARB to not only wind down the forward book it manages on behalf of the government, but also to wind down foreign debt. In so doing, structural impediments to economic growth are being removed, even though inflation — and not GDP — is the foremost indicator monetary authorities are performance-tested against,” Garrow said on Wednesday.
In December 2001, the rand reached a record worst level of R13,86 per dollar, R20,0866 per pound and R12,4790 per euro. It finished 2002 at R8,59 per dollar, as the rand was the best performing currency against the United States dollar in 2002.
The SARB and Treasury have consistently said in 2003 that the rand remains undervalued.
“The key driver in my opinion is the dollar. When it weakens, then it overwhelms all the rand negatives. In addition, the government and Reserve Bank have an active ‘strong rand’ policy and they tend to talk up the rand at every opportunity,” Chris Hart, senior Treasury economist, said in August 2003. — I-Net Bridge