The South African government has no plans to change its policy of allowing the market to determine the level of the exchange rate, Deputy President Phumzile Mlambo-Ngcuka said on Monday.
She said in a written reply, issued on Monday, to Democratic Alliance MP Ian Davidson that although the government has no plans to intervene to create a more competitive and a less volatile exchange rate, “it continues to strive to reduce volatility through incremental improvements in macroeconomic policy and microeconomic competitiveness”.
The deputy president said: “The level of the rand relative to other currencies is influenced by a wide range of factors, such as changes in commodity prices, and purchases of rand-denominated financial assets, most of which are beyond the reach of government intervention.”
She said further: “Nevertheless, macroeconomic policies have contributed to a more stable exchange rate via lower inflation and interest rates, a low fiscal deficit, more rapid economic growth, the elimination of the forward book and a steady increase in reserves.”
Mlambo-Ngcuka said that currency volatility “tends to occur when inflows and outflows are large and one-way”.
“Reducing the volatility in the nominal value of the currency can be more sustainably achieved as an indirect result of a more vigorous and developed economy exhibiting continuous inflows and outflows of capital as a result of thousands of daily economic transactions.”
She said greater levels of economic activity are, in part, “a result of [a] more efficient and more competitive economy”.
The deputy president said the Accelerated and Shared Growth Initiative of South Africa programme “aims to improve the competitiveness of the economy through a range of measures, including but not limited to improving the logistics system, increasing the supply of skilled labour … and improving the regulatory framework to reduce the costs of doing business”. — I-Net Bridge