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London - South Africa is looking at the impact of the carry trade on its rand currency and is weighing its options to curb currency volatility, the country's finance minister said on Thursday.
Pravin Gordhan ruled out the adoption of capital controls but noted that the International Monetary Fund (IMF) seems to be shifting its thinking on restrictions on the movement of capital.
"We have made a commitment that we will lean against the wind... we want less volatility," Pravin Gordhan told a business presentation at Bloomberg.
"We are... looking at the impact of the carry trade more carefully and the options we have to assist the currency to have less volatility," he said, adding that the government was assisting the central bank to build up reserves to have a buffer during bouts of sharp currency swings.
The carry trade involves investors borrowing currencies with low interest rates and investing it in high-yielding currencies
"All exporting currencies want a competitive edge as far as exchange rates are concerned."
Having risen some 25 percent against the dollar over the last 12 months, the rand now hovers at one-month highs against the dollar.
The exchange-rate appreciation seen in emerging economies such as South Africa has been attributed to carry trades - borrowing in currencies with the lowest interest rates to punt the proceeds on higher-yielding ones.
Brazil in October imposed a tax on capital inflows to halt the sharp appreciation of its currency and Russia has said it was considering "soft" measures to stem inflows.
Gordhan reiterated that South Africa had no plans to adopt capital controls for the time being but noted that global consensus on the issue had begun to shift.
"We will go with accepted wisdom at the moment... (but) the IMF and other players are asking for a rethink on inflation targeting, on interest rates and capital controls. They share the concerns that all of us have," he said.
In a shift from its long-held view that capital curbs are ineffective, the IMF says it now sees capital controls as one temporary measure to curb sudden surges in money flowing into emerging economies.
Central Bank, Eskom
Gordhan, who assumed his position last May, said the central bank's new mandate stressed its role in keeping a "watchful eye on what is called balanced and sustainable growth."
This involves not only economic expansion but also boosting employment in a country where roughly a quarter of the population are jobless.
The minister also said the finance ministry was progressing with providing financing for power utility Eskom, with the World Bank this month considering a loan application from Eskom for $3.75bn.
"We've got a few more billion to look for for Eskom, we'll find it some place or another," Gordhan said.
"On the financing side we can manage that, we will increase our guarantees to Eskom."
The Treasury last year approved guarantees totalling R176bn to support construction of new power plants.
- Reuters
