South Africa’s rand is providing a buffer against rising oil prices, minimizing “disruptions” in the economy from surging fuel costs, Finance Minister Pravin Gordhan said.
While the government seeks a currency that has “stability, predictability” and is competitive, it also wants one that can cushion against the impact of “extraneous shocks,” Gordhan said in an interview with the Wall Street Journal, according to a transcript published on the newspaper’s website today.
The rand’s 5 percent gain against the dollar since Feb. 1 is helping to offset oil prices above $120 a barrel and to keep inflation inside the central bank’s 3 percent to 6 percent target range. In October, Gordhan described the rand as “overvalued” and pledged to use tax revenue surpluses to help weaken it. Oil was trading at about $82 a barrel at the time.
The rand’s gains are “providing an important buffer in ensuring we don’t have major disruptions within our own macro-economy,” Gordhan told the newspaper. “But more importantly, not too negative an impact upon the larger ordinary folk, and what they have to pay for their transport and fuel costs more generally.”
South Africa’s government increased gasoline costs by 5.7 percent on April 6 after raising them 4.8 percent on March 2. The Reserve Bank left its benchmark interest rate unchanged at a 30-year low of 5.5 percent last month, citing oil and food prices as the biggest threats to the inflation outlook.
Labor unions and manufacturers have pressured the government to do more to weaken the rand after it climbed 11 percent against the dollar last year. The Reserve Bank boosted gross foreign currency reserves by $7.3 billion to $49.3 billion in the year through March 31.
Gordhan said the government is in favor of a “multilateral” approach to curbing volatile capital inflows into emerging markets, rather than imposing national measures, such as capital controls.
“We recognize that capital controls have been resorted to by many countries,” Gordhan said. “We’re carefully observing and analyzing the structural nature of the problems associated with global liquidity.”
Talks at the Group of 20 about creating an international monetary system are “getting to a point of convergence,” Gordhan said. Still, there is a lack of “political will on all sides” to take action, he said.
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