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Johannesburg - South Africa has had measured success in countering the effects on the rand of high capital inflows by increasing foreign exchange reserves, said a Reserve Bank official on Friday.
South Africa drew higher capital inflows in 2010, along with other emerging markets that had 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.
Monde Mnyande, chief economist and adviser to the bank's governor, said the appreciation of the rand has hurt the manufacturing sector and led to thousands of jobs being lost.
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 $4.2bn at the end of December.
"To counter these capital inflows, the emerging market countries have been concocting all sorts of techniques. The Reserve Bank also increased its holdings of foreign exchange reserves - with measured success," Mnyande told labour federation Fedusa in a speech.
The rand was trading at R7.0870/$ in Friday morning trade. It has recovered from an eight-weeek low of R7.14/$ it hit last Friday.
Analysts said the rand could firm to the R6.80/$ level despite the Reserve Bank's efforts, because monetary policy in developed nations should stay accommodative for longer.
The rand's effect on inflation, currently at near five-year lows, has been positive and the Reserve Bank expects inflation to stay within its 3% to 6% target until the end of 2012.
The impact on the economy of wage settlements reached in the past few months, which were more than double the inflation rate in some sectors, should diminish, he said.
"With inflation firmly anchored, I have no reason to doubt that the era of high wage settlements will be a thing of the past," he said, adding unions should "campaign vigorously" for ways of absorbing the jobless into the labour market.
South Africa drew higher capital inflows in 2010, along with other emerging markets that had 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.
Monde Mnyande, chief economist and adviser to the bank's governor, said the appreciation of the rand has hurt the manufacturing sector and led to thousands of jobs being lost.
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 $4.2bn at the end of December.
"To counter these capital inflows, the emerging market countries have been concocting all sorts of techniques. The Reserve Bank also increased its holdings of foreign exchange reserves - with measured success," Mnyande told labour federation Fedusa in a speech.
The rand was trading at R7.0870/$ in Friday morning trade. It has recovered from an eight-weeek low of R7.14/$ it hit last Friday.
Analysts said the rand could firm to the R6.80/$ level despite the Reserve Bank's efforts, because monetary policy in developed nations should stay accommodative for longer.
The rand's effect on inflation, currently at near five-year lows, has been positive and the Reserve Bank expects inflation to stay within its 3% to 6% target until the end of 2012.
The impact on the economy of wage settlements reached in the past few months, which were more than double the inflation rate in some sectors, should diminish, he said.
"With inflation firmly anchored, I have no reason to doubt that the era of high wage settlements will be a thing of the past," he said, adding unions should "campaign vigorously" for ways of absorbing the jobless into the labour market.
