Finance Minister Pravin Gordhan on Wednesday said it was fortunate that the rand currency was strong right now and helping to cushion the impact of higher international oil and food prices.
The rand has gained more than 30% against the dollar since the beginning of 2009. It hit strongest levels in more than three years this week and was last trading at 6.64.
“It’s fortunate to have a strong rand right now … We are still concerned about short-term capital,” Gordhan said on SABC when asked about the rand.
Like other emerging markets, strong capital inflows into South Africa in the wake of loose monetary policy in developed countries have been the main driver of the rand’s gains.
Foreign inflows into South Africa’s bond market tripled in 2010 and although they have slowed this year, the rand has continued to be strong.
The rand has been a positive factor for inflation, which has been inside the central bank’s target of between 3% and 6% since February 2010.
At current levels, it is considered too strong by manufacturers who would rather see it trading over 8.00 to the dollar.
“It does have a negative impact on manufacturing,” he said, adding that had it not been for the currency’s strength petrol and food prices would be higher. Petrol prices are at their highest level since mid-2008.
The manufacturing sector was the hardest hit by a recession in 2009 and although it is on a recovery, output levels are still below pre-recession levels. — Reuters