The South African rand has depreciated the most out of 16 major currencies tracked by Bloomberg.
The rand’s 16% slide against the dollar this year is benefiting exporters and South African authorities don’t have the resources to influence the currency, Finance Minister Pravin Gordhan said.
"There are some signs that the more agile exporters are taking opportunities now that they couldn’t take two years ago or a year ago," Gordhan said today in an interview with Manus Cranny and Francine Lacqua in London on Bloomberg TV’s The Pulse’show. "We would appreciate less volatility, particularly for players in the real economy who require more stability, more certainty."
The rand has come under pressure this year, dropping the most of 16 major currencies monitored by Bloomberg, as exports slumped and the US Federal Reserve said it will scale back its monetary stimulus, reducing the appeal of emerging-market assets. While the weaker currency may stoke inflation, it’s helping to partly offset a drop in exports from slower demand in Europe and a series of strikes in the South African economy.
The rand "acts as an important shock absorber," Gordhan said. "We would have appreciated less volatility, particularly for players in the real economy, who require more stability, more certainty. But equally, we’ve moved into a period where firms need to be more agile, more innovative and more contemporaneous in terms of they way they need to respond to opportunities."
Gross Reserves
The local currency fell 0.5% to 10.0378 per dollar as of 1.46pm in Johannesburg.
While the central bank has been boosting foreign-currency reserves to support the rand, it doesn’t have the financial muscle to target a specific level of the currency. Gross reserves increased 4.3% to $50-billion in September, the central bank said today, compared with $376-billion in Brazil.
"A few countries have tried it and they’ve lost a lot of money," Gordhan said, referring to intervention in the foreign-exchange market. "We don’t have those sorts of resources in the South African case."
Strikes in the manufacturing and mining industries this year have curbed growth in Africa’s biggest economy, forcing the government to downgrade its projections. While the economy will miss its target of 2.7% expansion this year, the growth rate won’t be below 2%, said Gordhan, who is due to give revised estimates in a mid-term budget on October 23.
Labor Strikes
Plans by BMW, the world’s largest maker of luxury vehicles, to halt expansion plans in South Africa because of pay strikes is a "worrying sign," Gordhan said. Plants owned by carmakers including BMW, Toyota and Volkswagen were shut for three weeks in August and September, costing the industry about R20-billion ($2-billion) in lost output, according to the National Association of Automobile Manufacturers of South Africa.
While it’s "regrettable" that strikes in some industries in recent weeks took longer to be resolved than expected, many of the wage settlements are for three years, providing stability in the economy, Gordhan said. The government will hold talks with BMW and other carmakers to assure them of plans to improve the economic environment, he said. – Bloomberg