/ 7 August 2006

SA July reserves edge up to $20,45-billion

South Africa’s gold and foreign exchange reserves edged up during July, but at a slow pace, showing that the country’s central bank was inactive in currency markets while the rand remained volatile.

Figures from the South African Reserve Bank showed that net reserves rose to $20,447-billion at the end of July from $20,185-billion at the end of June, mainly due to a revaluation of their gold component.

During June the central bank’s reserves fell for the first time in two years, after the value of gold plummeted and the central bank avoided large purchases of foreign exchange in a month when the rand fell to a two-and-a-half year low.

”It is not too much of an improvement. With the rand volatility continuing, it is unlikely that the Reserve Bank will be more interventionist in the market to stockpile reserves,” Brait economist Colen Garrow said.

”As far as impact on the currency, I think it is a pretty neutral number.”

The rand was unmoved at 6,83/dollar after the data, which showed that in terms of the local currency, reserves fell to R165,94-billion from R175,5-billion in June.

That was because during July the average value of the rand firmed to 6,87 to the dollar from 7,17, according to the statement posed on the central bank’s website.

During the month, the average price of an ounce of gold rose to $635,875 from $606,500.

Gross reserves rose to $24,162-billion from $23,950-billion.

Snapshot

”I think obviously this is a snapshot of reserves during a certain time of the month. There could have been a deterioration at the beginning of the month and then improvement as it went on,” Nedbank chief economist Dennis Dykes said.

”It still is a bit early to tell [what to expect next month]. It seems that the markets have settled a bit so hopefully there will be a build up once again.”

After suffering for several weeks from risk aversion, emerging market currencies like the rand have found respite on speculation that the US Federal Reserve will halt its dollar-supportive interest rate raising campaign.

The local currency has clambered off a two-and-a-half year low of 7,52/dollar hit in June, but remained volatile during July, trading in a range between 6,86 and 7,28 versus the greenback according to Reuters data.

South Africa brought a long-standing negative reserves position into balance early in 2004 with the elimination of its loss-making forward foreign exchange book — historically seen as the Achilles’ heel of the rand currency.

Since then net reserves have generally climbed steadily, but they still tend to lag comparable emerging markets.

The SARB has repeatedly said it will continue to build its reserves by buying foreign exchange when market conditions permit, but will do so cautiously to avoid affecting the value of the rand. – Reuters