The South African Reserve Bank’s tolerance of rand gains appears to have ended as the rand gained strength in recent days, RMB said on Tuesday.
This followed Reserve Bank Governor Tito Mboweni’s comments in a telephone call he made to Reuters that the central bank was unhappy with the current rand strength.
The governor said the rand was ”fairly elevated” and that these levels ”may be unwelcome” for the country’s ailing economy.
A strong rand could hamper a recovery in local factory exports, when the global economy embarks on a recovery process.
”This is the second comment regarding rand strength from the governor in as many weeks,” said RMB currency strategist John Cairns.
”In May the published transcript of a speech he [Mboweni] gave included comments that the [Reserve Bank] forecasts the real effective exchange rate to weaken 4,5% over the rest of the year.”
Cairns added that while the governor’s comments were often ”misinterpreted” by the markets, his latest rand comments seemed deliberate enough to be taken seriously.
”In fact, his words take on additional meaning given how infrequently he makes any comments at all on the rand.
”The result is that we finally seem to have reached the end of [Reserve Bank] tolerance for rand gains,” Cairns noted.
”Whether we have actually already seen [the Reserve Bank] reserve accumulation will only be shown in the reserve figures on Friday, but clearly action is likely if the rand rally continues,” Cairns said.
Although this did not preclude further gains, it would make them more difficult and, on the basis of past experience, gains would not last unless global market gains were overpowering, he added.
Cairns said that while the Reserve Bank almost certainly did not have an exact level in mind for the rand, meaningful reserve accumulation at levels below 8.00 on the US dollar/rand should be expected.
At 9.15am on Tuesday the rand was trading at 8,07 to the dollar.
On Monday the rand reached a nine-month peak of R7,86 against the dollar. — Sapa