Bloomberg News

South Africa’s Gordhan Says No Easy Fix for Rand Strength

June 07, 2011

(Updates with Gordhan’s comments starting in second paragraph.)

June 7 (Bloomberg) -- South Africa needs to work with its Group of 20 partners to counter the negative effects that capital inflows are having on developing countries’ currencies, Finance Minister Pravin Gordhan said.

The strength of South Africa’s rand is “one of the many factors” undermining manufacturing and exports in Africa’s biggest economy, Gordhan told reporters in Cape Town. The capital flows that have boosted the rand won’t end soon, he said.

“Short-term flows of funds are creating a negative impact on the economies of developing countries, including asset bubbles and currency appreciation,” Gordhan said. “This is an area that doesn’t have an easy solution. There is no magic formula” to curb currency appreciation, he said.

The rand has appreciated 16 percent against the dollar in the past 12 months, prompting calls from labor unions for government intervention to weaken the currency. Trade and Industry Minister Rob Davies yesterday said the rand is overvalued and government is discussing ways to deal with currency strength.

South Africa will continue to accumulate reserves “to the extent that affordability allows,” Gordhan said. The rand gained as much as 0.7 percent today after the central bank scaled down its foreign-currency purchases. The currency traded 0.6 percent stronger at 6.7232 per dollar at 3:40 p.m. in Johannesburg.

Any solution to currency appreciation would have to find a balance between the needs of developed and developing countries, Gordhan said.

“The world needs to find a formula that enables better investment prospects for the funds in the developed world, and long-term investment prospects in continents like Africa, and particularly South Africa,” Gordhan said. “The solution doesn’t lie in only one country.”

--Editors: Gordon Bell, Linda Shen

To contact the reporter on this story: Robert Brand in Cape Town Nef at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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