SA Reserve Bank may intervene if rand fall threatens stability

SA Reserve Bank may intervene if rand fall threatens stability

JOHANNESBURG – SA’s Reserve Bank (SARB) could intervene in the foreign exchange markets if recent developments threaten stability, it said after global markets took a hammering on fears of China’s growth prospects with equity and commodity markets falling and emerging market currencies depreciating.

“In the event of developments that threaten the orderly functioning of markets or that may have financial stability implications, the SARB may consider becoming involved in foreign exchange markets to ensure orderly market conditions,” the bank said in a statement late on Monday.

The rand hit an all-time low on Monday, recording its biggest daily loss in 19 months, touching 14 to the dollar, its weakest level on record according to Thomson Reuters data.

The weaker rand is likely to fuel inflation, putting pressure on the central bank to raise domestic rates further despite an economy struggling to grow in the face of South Africa’s worst power crisis in seven years.

The SARB said the reaction of South African financial markets was generally consistent with markets around the world and that it remained committed to the rand exchange rate being set by market forces.

“This position, however, does not suggest that the SARB is completely indifferent to exchange rate movements,” it said.

The bank reiterated that the rand exchange rate did present a significant upside risk to inflation.

“The SARB operates within a flexible inflation targeting framework and will continue to pursue sound monetary policy in the interest of balanced and sustainable economic growth,” it said.

At around 8am South African time on Tuesday, the rand was trading at 13.19 to the dollar and 20.81 to the pound, according to data on Sharenet. – ANA