Bloomberg News

Overvalued Rand Puts Pressure on Current Account, Nene Says

June 29, 2011

(Updates with deputy minister’s comments starting in third paragraph.)

June 29 (Bloomberg) -- South Africa’s rand is overvalued and is putting pressure on the current-account deficit, increasing the country’s vulnerability to external economic shocks, Deputy Finance Minister Nhlanhla Nene said.

The rand has gained 36 percent against the dollar since the beginning of 2009, undermining the competitiveness of the country’s exports. The shortfall in the current account, the broadest measure of trade in goods and services, expanded to 3.1 percent of gross domestic product in the first quarter from a revised 1 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin released on June 21.

“There is no silver bullet” for addressing the rand’s strength, Nene told reporters in Cape Town today. “If it corrects itself and you have taken drastic steps to try and deal with that, you might actually find yourself on the other side again and trying to actually see if you can’t appreciate the currency. There is no agreed level” for the rand.

The currency gained 0.2 percent to 6.8257 per dollar at 10:48 a.m. in Johannesburg.

While South Africa’s economic recovery is stronger than a year ago, the foundations aren’t yet sustainable and the economy is still “highly dependent” on expansionary fiscal and monetary policy, Nene said in a speech to a development conference in Cape Town.

Africa’s largest economy grew at its fastest pace in a year in the first quarter, expanding 4.8 percent, spurred by the lowest interest rates in three decades.

“Our economic growth is based on growing demand, and demand doesn’t take off quickly,” Nene said. “Most of the markets are on a recovery path, which is fragile at the moment.”

--Editors: Philip Sanders, Ana Monteiro

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net.

To contact the editor responsible for this story: Andrew Barden at barden@bloomberg.net.


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