Foreign exchange reserves dip in April

Cape Town – South Africa’s gross reserves, which include gold reserves, special drawing rights (SDRs) and foreign exchange reserves, increased by $102m to $46.7bn in the month from March to April, the South African Reserve Bank (SARB) said on Monday. 

The month-on-month rise in gross reserves reflects the increase in the dollar gold price. 

The country’s foreign exchange reserves declined slightly from $39.163bn to $39.142bn, as the valuation gains from the depreciation of the US dollar against major currencies was more than offset by foreign exchange payments made on behalf of the government and as there was an increase in foreign exchange swaps conducted for liquidity management purposes, the SARB said.

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South Africa’s international liquidity position – which includes foreign currency deposits received – improved from R41.4bn to R41.7bn from March to April. 

The increase in the international liquidity position can be contributed to gains in gross reserves, the forward position and the change in the foreign currency deposits received. 

Commenting on the figures, NKC African Economics Analyst Elize Kruger said in a statement the international liquidity position is only $571m higher compared to April 2016. 

“In rand terms, the value of gold and foreign assets declined by R243.75m to R618bn – down from R618.3bn at the end of March. This partly reflects a marginally stronger rand exchange rate at the end of April.” 

Kruger points out that foreign exchange reserves are an important indicator of a country’s ability to repay foreign debt in the short term and could also be used for currency defence. 

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According to the latest Financial Stability Review released by the Reserve Bank, attention could shift back to foreign reserve holdings as a stabilising mechanism should the global economic outlook deteriorate, Kruger said. 

The SARB publishes the review to identify and analyse potential risks to financial system stability. 

"A high level of external financing needs might make South Africa vulnerable to market volatility as reserves are important for maintaining liquidity, allowing time to absorb shocks and providing confidence in the discharge of external obligations,” Kruger said.