While the strength of the rand was “an issue,” solutions were not simple, SA Reserve Bank (SARB) Governor Gill Marcus said today.
The rand is currently trading at around R7.68 to the dollar, but both manufacturing and labour have called for a weaker currency so that the country’s exports become more competitive.
Speaking at a breakfast presentation in Johannesburg, Marcus said it was not possible to have loose monetary policy and loose fiscal policy and a weaker exchange rate.
She said: “This will not translate into a depreciated real exchange rate, rather, it is a simple recipe for higher inflation.”
She added that another issue was the local currency’s volatility.
However, she said that SARB’s policy towards the rand had not changed: “The approach is not different, but the SARB is aware of the rand’s volatility. We will look at the opportunity to build reserves when possible.”
Marcus added that “a wall of money” was moving into emerging markets.
As a result of the levels of yields in the United States and Europe, investors were looking elsewhere for returns and this strengthened the currency.
She said: “The scale of money moving in is very difficult to manage.”
However, she said that South Africa had exchange controls as to money moving in and money moving out the country.
She added that over 40% of the JSE was foreign owned, so important issues arose when dealing with currencies.