/ 7 April 2010

Reserve Bank reiterates no currency peg

The South African Reserve Bank has again ruled out pegging the rand against the dollar, despite worries over the strength of its currency, Business Report said on Wednesday.

Both the government and the central bank have in the last few months expressed concern that the stronger rand undermines export competitiveness and therefore economic growth, but say the need for a stable, competitive exchange rate does not translate into fixing the currency.

Business Report quoted Reserve Bank head of economic research Johan van den Heever as telling legislators that maintaining a currency peg required large foreign-exchange reserves.

He used the example of China, which has amassed huge volumes of foreign reserves in the process of keeping the yuan’s value pegged to the dollar.

“If you have a currency peg, then you need much [larger] foreign-currency reserves,” Van den Heever was quoted as saying. “They [China] have accumulated foreign-currency reserves on a scale that one cannot believe.”

Allies of the African National Congress have pushed for the government to intervene to weaken the rand, saying it has hurt the manufacturing sector, now slowly recovering after its plunge last year pushed the country into recession, leading to massive job losses.

Last month National Treasury Director General Lesetja Kganyago said South Africa needed to find ways of moderating currency volatility but fixing the rand at a set level would be hard to implement and costly. — Reuters