Warnings about 'rand tax'

Johannesburg - The implementation of a tax on short-term speculative flows should be carefully considered, Absa Capital said in its emerging markets research report on Tuesday.

Their comments follow newspaper reports that the African National Congress is looking at options to make the rand more competitive, including a possible tax on short-term capital flows into the economy to try and curb rand volatility.

South Africa is heavily reliant on capital inflows, which in turn strengthen the rand.

According to the report, record portfolio flows to the tune of R78.5bn year-to-date have helped buoy the rand.

The South African Reserve Bank (Sarb) governor Gill Marcus has said on a number of occasions that although the bank is concerned about rand volatility, it prefers the rand exchange rate to be determined by the market.

Meanwhile, the National Treasury has said while there was an agreement on the need for a stable and competitive exchange rate, there was debate about the kind of "instruments and tactics" that should be used to achieve this.

"We agree with the National Treasury's view that the implementation of a tax on short-term speculative flows needs to be carefully considered, given SA's still heavy reliance on these flows to finance its current account deficit owing to the country's poor savings record," Absa Capital analysts said.

Those calling for a weaker rand have been cautioned. Absa Capital said that a weaker currency also needed to be taken in context of the possible negative  implications for inflation.

- I-Net Bridge