Marcus: Rand meddling may not work

Johannesburg -  There are no guarantees that strategies to weaken the rand would work and such options are limited now that the government's budget is in deficit, Reserve Bank governor Gill Marcus said on Thursday.

The rand has firmed by more than 22% against the dollar since the beginning of 2009.

Manufacturers have blamed the rand's gains for manufacturing sector woes, including thousands of job losses since the recession.

"Setting a ceiling implies a commitment to prevent the currency from appreciating beyond a certain level, irrespective of the cost," Marcus said in a Financial Mail article.

"It could have the unintended consequence of inviting speculators and others to test resolve or to see how deep the pockets are," she said, adding that underlying problems of competitiveness could not be solved by the exchange rate alone.

Manufacturers have said they would like the government to intervene aggressively to weaken the rand to about R8.50, from current levels at R7.40 to the dollar.

South Africa's manufacturing sector contracted by 7% in the second quarter, contributing to a sharp economic slowdown to 1.3%.

Marcus said options to intervene aggressively to weaken the rand were limited now that the government budget is in deficit.

"When the fiscus was in surplus, it was relatively easy to provide support to fund these (foreign exchange) purchases and to cover the costs of sterilisation," she said.

"With government now running a budget deficit, the policy choices are somewhat limited," she said.

The National Treasury has spent more than $50bn since the beginning of 2010 to help the central bank raise foreign exchange holdings. Gross reserves have climbed by nearly 20% over the past 12 months to $51.45bn.

Of the recent action by the Swiss central bank to target a level for the currency, Marcus said that "there are no guarantees that the Swiss National Bank will be able to maintain this ceiling if the costs become excessive".

Switzerland's central bank last week said it would peg its currency and enforce that by buying foreign currency.