Although “carry trade” has played a role in the strength of the rand, the activities of exporters and importers have the biggest impact on the rand’s exchange rate, according to South African Reserve Bank (SARB) Governor Tito Mboweni.
Carry trade refers to investments made by traders by borrowing funds in low-interest rate countries (the United States, for example) to finance investments in higher-yielding countries (such as South Africa), which causes the rand to appreciate against the dollar.
Addressing a meeting of Parliament’s joint finance committees on Friday morning, Mboweni said there is “no doubt” that carry trade has some impact on the exchange rate of the rand, and the SARB’s research department is currently trying to find out more exact numbers in dollar terms of how much trade is taking place.
“However this is very short-term and is unlikely to stay long in any position,” he noted. “So no doubt this carry trade does have some impact on the exchange rate, but it is not as big as has been said. The biggest impact on the rand is exporters and importers.” — I-Net Bridge