The South African Reserve Bank (SARB) has increased its “creaming off of excess dollars” from the open market to $469-million in July from only $254-million in June.
The July 2004 trade-weighted rand average of R62,17 was the strongest since October 2000. This is 52,5% stronger than the December 2001 monthly average of R40,78.
The SARB’s buying of United States dollars to add to its foreign reserves prior to July has disappointed economists, even though the SARB increased its foreign-exchange holdings by $884-million in June to a then-record $9,782-billion.
The July foreign-exchange reserves exceeded $10-billion for the first time and stood at $10,251-billion at the end of the month. Many economists believe that the SARB should have at least $20-billion in foreign-exchange reserves given that monthly imports exceed $4-billion.
Many economists had expected a rise above $1-billion in June given the strength of the rand against the US dollar.
The SARB received $1-billion from the government’s foreign bond, but repaid $370-million on a maturing foreign bond, leaving a net $630-million proceeds from foreign loans.
That meant it only bought a net $254-million in the open market, which is lower than the $296-million bought in May 2004 and the $328-million bought in April.
“There has been a welcome increase in the scale of monthly buying by the SARB and if this continues for the rest of the year then we could see gold and foreign exchange reserves reach $15-billion by the end of the year,” said Marissa Fassler, JP Morgan’s Johannesburg-based economist.
The SARB’s gross gold and foreign exchange reserves amounted to $11,801-billion at the end of July as the SARB also has $1,55-billion in gold reserves.
In March the SARB added $1,518-billion, the vast majority of that due to the Norilsk/Anglo American deal. If the Norilsk deal is excluded, then the SARB bought a net $358-million in the open market in March.
The March increase was the largest increase in foreign-exchange reserves during SARB Governor Tito Mboweni’s tenure and gave evidence that the SARB is following through on its promise to increase its gross reserves.
Up until February 2004, the foreign-exchange reserves fluctuated around the $6-billion level since 1999, but then rose to $8,274-billion in March from $6,756-billion in February and $6,462-billion in January.
At the end of May they reached $8,898-billion from $8,602-billion at the end of April.
As long ago as November 1999, the foreign-exchange component was raised to $6,28-billion from $5,875-billion in October 1999 and $4,863-billion in July 1999 ahead of the Y2K changeover.
The increase in South Africa’s foreign exchange reserves from $11,23-billion at the end of 1999 to $26,677-billion at the end of April 2004 has largely been due to an increase in the foreign-exchange reserves of commercial banks, not the SARB. — I-Net Bridge