Davos - South Africa has taken measures to counter capital inflows but the rand is still overvalued, Finance Minister Pravin Gordhan said on Friday.
South Africa attracted higher capital inflows in 2010 along with other emerging markets with more attractive rates than developed nations. Inflows into the bond market tripled to R58.6bn in 2010.
This was one factor that helped push the rand up more than 25% in the past two years.
Gordhan said the central bank has built up foreign exchange reserves and used currency swaps, while the government also loosened controls to allow capital outflows.
"But the rand remains reasonably overvalued and the impact is severe in the manufacturing sector," Gordhan said on the sidelines of the World Economic Forum in Davos.
The Reserve Bank quickened the pace of its reserves accumulation last year, pushing gross reserves to $43.834bn at the end of December.
It also started using longer term currency swaps in August to shore up its holdings. Its forward position stood at $4.2bn at the end of December.
On Friday, the rand fell 1.1% as the central bank sold the currency.
Emerging stocks extended losses and debt insurance costs across the Middle East and North Africa surged as jitters over political unrest in Egypt spilt into the broader region.
Asked if political turmoil in Egypt would damage general investor interest in Africa, Gordhan said the African Union will play a key role in dealing with instability.
"Africa as a whole has had political stability for a long time. In areas where there is instability, the African Union will assertively deal with the issue," Gordhan said.
"They are determined to tackle problems."
South Africa attracted higher capital inflows in 2010 along with other emerging markets with more attractive rates than developed nations. Inflows into the bond market tripled to R58.6bn in 2010.
This was one factor that helped push the rand up more than 25% in the past two years.
Gordhan said the central bank has built up foreign exchange reserves and used currency swaps, while the government also loosened controls to allow capital outflows.
"But the rand remains reasonably overvalued and the impact is severe in the manufacturing sector," Gordhan said on the sidelines of the World Economic Forum in Davos.
The Reserve Bank quickened the pace of its reserves accumulation last year, pushing gross reserves to $43.834bn at the end of December.
It also started using longer term currency swaps in August to shore up its holdings. Its forward position stood at $4.2bn at the end of December.
On Friday, the rand fell 1.1% as the central bank sold the currency.
Emerging stocks extended losses and debt insurance costs across the Middle East and North Africa surged as jitters over political unrest in Egypt spilt into the broader region.
Asked if political turmoil in Egypt would damage general investor interest in Africa, Gordhan said the African Union will play a key role in dealing with instability.
"Africa as a whole has had political stability for a long time. In areas where there is instability, the African Union will assertively deal with the issue," Gordhan said.
"They are determined to tackle problems."