Bloomberg News

Rand Advances to 2-Week High After Gordhan Says May Aid Markets

October 12, 2011

Oct. 12 (Bloomberg) -- The rand surged to a two-week high against the dollar after South African Finance Minister Pravin Gordhan indicated the government may intervene in the foreign- exchange market to reduce swings in the currency.

The rand appreciated as much as 1.9 percent to 7.7684 per dollar, its strongest level since Sept. 29, and traded 1.5 percent up at 7.7951 as of 4:35 p.m. in Johannesburg. Against the euro, the rand advanced 0.3 percent to 10.7610.

South Africa has sufficient foreign-currency reserves “to ease temporary market stress in response to global market turmoil,” Gordhan said in a written reply to lawmakers circulated today. The government will consider its options if financial market conditions require it to intervene, he said in an interview in Johannesburg today, suggesting a departure from a policy of non-intervention in the market.

“It makes sense for them to sell dollars in times of rand volatility,” Leon Myburgh, a Johannesburg-based analyst at Citigroup Inc., said by e-mail in response to questions from Bloomberg. “The question is when will they do that? I would argue only in periods of extreme rand weakness.”

The central bank has boosted gross gold and foreign- currency reserves to $49.7 billion at the end of September, up from $34.4 billion two years earlier, to moderate gains in the rand and improve the competitiveness of exports. Concerns that the European debt crisis will stall the global economic recovery led investors to sell riskier, emerging-market assets, causing the rand to drop 12 percent in the past three months.

Rand Level

“If there’s a volatile environment that requires us to intervene, then we will have to consider all our options,” Gordhan said.

The South African Reserve Bank, which accumulates foreign- exchange reserves and deposits some of them with the National Treasury, doesn’t target a level for the rand, Governor Gill Marcus told lawmakers at a separate briefing. The central bank won’t intervene to strengthen or weaken the rand, she said on Sept. 22.

The central bank has deposited about $8 billion with the Treasury, which could be used to bolster the rand, Myburgh said. The government did not sell dollars in September, when the rand plunged to a two-year low against the dollar, suggesting it is comfortable with the currency at current levels, he said.

“If we have a worse-case scenario, which will impact the Reserve Bank’s growth outlook, and the rand blows out, obviously then you would need to intervene to shore up your currency,” Nema Ramkhelawan-Bhana, a currency strategist at Rand Merchant Bank in Johannesburg, said by phone.

Rand Gains Extended

The rand’s extended gains as European plans to tackle its sovereign-debt crisis helped ease concern for the global economic recovery. European Commission President Jose Barroso later today presents proposals on bank recapitalization after Germany and France pledged to draw up a plan by November.

“The event risk from Europe and the U.S. this week is low, and portfolio flows into the rand have recovered,” Ramkhelawan- Bhana said.

Foreign investors bought a net 2.9 billion rand ($371 million) of South African equities and bonds in the first two days of this week, adding to 1.6 billion of purchases last week, according to JSE Ltd. data.

South African 10-year bond yields dropped five basis points, or 0.05 percentage point, to 8.03 percent at 4:03 p.m. in Johannesburg, the lowest since Sept. 16.

--With assistance from Stephen Gunnion in Johannesburg and Mike Cohen in Cape Town. Editors: Ana Monteiro, Linda Shen

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

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


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