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Johannesburg - The rand is currently undervalued and fluctuations in the currency are partly driven by political turmoil, Reserve Bank governor Lesetja Kganyago said.
“At the moment we could say that there is undervaluation of the rand,” Kganyago said in an interview with Bloomberg TV’s Jonathan Ferro, Alix Steel and David Westin in New York on Wednesday. “By how much we don’t know because there are so many moving parts.”
While the rand has gained 13% against the dollar since the start of the year, after losing 25% of its value in 2015, it was the most volatile among 31 major and emerging-market currencies tracked by Bloomberg during the last six months.
The currency slumped to a record after the removal of Nhlanhla Nene as finance minister in December and weakened again in August after reports that the current Finance Minister Pravin Gordhan is being probed by police and may be arrested.
“Since December significant moves in the rand had been due to idiosyncratic factors,” Kganyago said later in an interview with Bloomberg Radio’s Michael McKee. “There’s a lot of political noise in our country at the moment.”
The rand strengthened 0.4% to R13.7685/$ by 16:13 on Wednesday. Yields on rand-denominated government bonds due December 2026 rose eight basis points to 8.64%.
Kganyago is in New York with Gordhan and a delegation of business leaders for a conference with investors on Tuesday and Wednesday as part of an effort to boost confidence in the economy. The political “noise” in South Africa doesn’t help with the certainty that investors would like to see, he said.
The Reserve Bank has left its benchmark repurchase rate unchanged at 7% at its last three meetings after increasing it by 2 percentage points since the start of 2014, and has said the end of the policy-tightening cycle may be near.
Inflation slowed to 5.9% in August, the first time this year it’s below the upper end of the bank’s 3% to 6% target band. The economy is forecast to expand at the slowest pace this year since a 2009 recession.
“We are cognisant of the weak economy, but we have to strike a balance,” Kganyago said. “Should inflation expectations become completely de-anchored we might find ourselves having to take even harder steps with respect to policy and that might not be good for the economy.”
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