Gordhan: Rand is below fair value

South African Finance Minister Pravin Gordhan said the rand is trading below its fair value after a sell-off of emerging-market currencies.

The government is monitoring the rand carefully, Gordhan said in a speech in Johannesburg on Wednesday. The depreciation in emerging-market currencies is partly an overreaction by financial markets, he said.

The rand slumped 2.5% against the dollar to as low as 11.3803 on Wednesday, with a surprise interest-rate increase by South African policy makers failing to stem its slide.

Raised costs
Emerging-market currencies have come under pressure as the US Federal Reserve reduces its monetary stimulus program that's helped to fuel capital inflows. Gordhan said a weaker rand raises import costs while creating opportunities for exporters.

The Reserve Bank increased its benchmark interest rate by half a percentage point to 5.5% on Wednesday as it forecast inflation will breach the 3% to 6% target by the second quarter. 

Turkey more than doubled its key rate at an emergency late-night meeting the day before. The Fed said on Wednesday it will cut back its quantitative easing by $10-billion to $65-billion a month.

Mark Mobius, chairman of Templeton Emerging Markets Group, said in an interview on Wednesday that inflows into developing nations will resume later this year. – Bloomberg

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