The SA Reserve Bank would continue to build up the country’s foreign reserves but would not attempt to control the exchange rate, the bank’s deputy governor, Ian Plenderleith, said in Cape Town on Tuesday.
Plenderleith told the Association of Collective Investments conference the bank was fully aware of the strains placed on local manufacturers and exporters by a stronger rand.
However he said the bank’s operations would remain focused on rebuilding foreign reserves which would have long-term benefits for the economy.
He said that in the past, South Africa’s low foreign exchange reserves position had been seen as a weakness in the economy.
In September 1998 the country had a negative foreign exchange reserves position of $23-million, but this situation had improved progressively and the negative position was eventually closed out in May last year.
Plenderleith said that since then, reserves had continued to rise to a current level of gross reserves of $11,8-billion and net reserves of $8,4-billion.
”We can, and will, continue gradually to build up our official foreign exchange reserves to a respectable level in an orderly fashion in accordance with our balance sheet whenever circumstances allow,” he said.
Plenderleith said the scale of the bank’s operations had been cumulatively more substantial than was sometimes recognised.
”We have acquired over six years, directly by purchases in the market, or indirectly, of the order of $30-billion. Around $10-billion of this has been acquired in the past 18 months,” he said.
In spite of the strains placed on businesses by the stronger rand, Plenderleith said it would not be sensible to intervene by managing the exchange rate.
”Firstly, neither we, nor anyone, can claim with any confidence to know what would be an appropriate equilibrium exchange rate.
”Secondly, endeavouring to manage the exchange rate would jeopardise our success in delivering low inflation…,” he said.
”So we can, through our continuing operations designed to rebuild reserves, help in the process to moderate the pace of adjustments in the exchange rate,” he said. – Sapa