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Johannesburg - The Reserve Bank bought at least $618m in the currency markets to try to push the rand weaker in September, the bank's latest statement on its gold and foreign exchange reserves shows. This is more than the $504m bought the previous month.
That is SA's contribution to the so-called currency war being waged in international markets at the moment. It's small by international standards - central banks like Brazil's think nothing of buying $1bn a day.
A wall of foreign capital has flowed to emerging markets because of abnormally low interest rates in developed countries. This flood of capital is pushing up currencies all over the world, and central banks have been intervening (buying dollars) to stop their currencies from overheating.
The Reserve Bank's intervention figure is arrived at by looking at the bank's forward position, because it invests dollars it buys in the forward market.
It does this to reduce the cost to the taxpayer of intervening in the currency market. The cost arises because there is an inflow of rands into the money market when the Reserve Bank buys dollars, which heightens money supply and is a danger for inflation. This inflow of rands needs to be "sterilised".
Rand Merchant Bank (RMB) economists calculate that the "naked intervention" in the market could have been more, about $700m. This is after taking account factors such as the weaker dollar, which increased the size of the reserves, and the stronger gold price, which did the same.
The Reserve Bank's total liqudity position rose to $40.9bn - up $1.7bn from the previous month.
"Today's release has perhaps set the tone for further Reserve Bank accumulation (of reserves) assisted by marginally lower sterilisation costs, and has possibly addressed a few questions relating to the ongoing rand debate.
"However, we maintain that sustained purchases in excess of $500m would need to be undertaken to stem the tide of capital inflows and prove meaningful to the rand in the long run,' RMB said.
Nedbank economist Isaac Matshego pointed out that foreign investors were net buyers of domestic equities and bonds to the value of R656.6m, with net bond purchases of R6.9bn and net equity sales of R6.2bn during the month. Cumulative purchases of portfolio capital for the year reached R88.1bn.
- Fin24.com
That is SA's contribution to the so-called currency war being waged in international markets at the moment. It's small by international standards - central banks like Brazil's think nothing of buying $1bn a day.
A wall of foreign capital has flowed to emerging markets because of abnormally low interest rates in developed countries. This flood of capital is pushing up currencies all over the world, and central banks have been intervening (buying dollars) to stop their currencies from overheating.
The Reserve Bank's intervention figure is arrived at by looking at the bank's forward position, because it invests dollars it buys in the forward market.
It does this to reduce the cost to the taxpayer of intervening in the currency market. The cost arises because there is an inflow of rands into the money market when the Reserve Bank buys dollars, which heightens money supply and is a danger for inflation. This inflow of rands needs to be "sterilised".
Rand Merchant Bank (RMB) economists calculate that the "naked intervention" in the market could have been more, about $700m. This is after taking account factors such as the weaker dollar, which increased the size of the reserves, and the stronger gold price, which did the same.
The Reserve Bank's total liqudity position rose to $40.9bn - up $1.7bn from the previous month.
"Today's release has perhaps set the tone for further Reserve Bank accumulation (of reserves) assisted by marginally lower sterilisation costs, and has possibly addressed a few questions relating to the ongoing rand debate.
"However, we maintain that sustained purchases in excess of $500m would need to be undertaken to stem the tide of capital inflows and prove meaningful to the rand in the long run,' RMB said.
Nedbank economist Isaac Matshego pointed out that foreign investors were net buyers of domestic equities and bonds to the value of R656.6m, with net bond purchases of R6.9bn and net equity sales of R6.2bn during the month. Cumulative purchases of portfolio capital for the year reached R88.1bn.
- Fin24.com
