Forex reserves won't be used to help rand

Cape Town - The rand is expected to stabilise at stronger levels than seen at present and the government is not thinking about using reserves to manipulate its value, Treasury director general Lungisa Fuzile said on Tuesday.

Finance Minister Pravin Gordhan said last month the Treasury would consider using reserves in an extreme crisis, but did not spell out how this would be done or to what end.

“The reserves are our kind of insurance against sudden stops or reversals in capital flows, not a means of trying to manipulate the currency,” Fuzile told reporters at a three-year budget briefing at parliament.

The rand, one of the most traded emerging market currencies, has traded in a range of R6.58/$ to R8.25/$ in 2011, its volatility increasing in the past two months due to global financial turmoil.

Its 20% fall against the dollar in September brought some relief to manufacturers, though it started to pile inflationary pressure on the economy.

Fuzile said the rand was unlikely to sustain the weakness seen in September and would probably find its feet at a firmer level than its current R7.86/$.

“It will probably stabilise at a somewhat stronger level than the current levels that we see,” Fuzile said.

However, in its medium-term outlook the Treasury said the eurozone debt crisis could increase rand volatility if commitments by European leaders were not backed by credible plans to boost competitiveness and growth.

“Slower growth and instability in Europe would reduce demand for South African exports and increase rand volatility,” it said.