Bloomberg
South Africa to Follow Poland in Weakening Currency, BNP Says
April 13, 2010, 6:22 PM EDT
By Garth Theunissen
April 14 (Bloomberg) -- South Africa is likely to follow Poland’s lead in buying foreign currency to weaken its exchange rate as the rand’s 29 percent rally against the dollar since 2008 hampers the economy’s recovery, BNP Paribas SA said.
The rand has surged the most among 10 currencies in Europe, the Middle East and Africa, returning more than six times the Polish zloty’s 4.2 percent advance since 2008. The gains are pushing the rand toward a key level of 7 per dollar, which it last breached in January 2008.
“We are very, very close to the point at which the South African Reserve Bank will begin to intervene in the market to limit the strength of the rand,” Bartosz Pawlowski, an emerging-markets strategist at BNP, said in an interview in Johannesburg. “If it gets to about 7 to the dollar we think they’ll start to intervene more aggressively.”
The National Bank of Poland bought foreign currency to lower the zloty for the first time since 1998 last week and said it may do so again. While South African Finance Minister Pravin Gordhan and central bank Governor Gill Marcus have said they’re concerned by the rand’s strength, the country’s net reserves were unchanged last month, suggesting the central bank hasn’t boosted foreign currency purchases.
The Reserve Bank faces calls to weaken the rand from exporters and labor groups who say the currency’s strength is stalling a recovery from the country’s first recession in 17 years. The number of South Africans claiming unemployment benefits surged an annual 71 percent in the year through February as factories and mines cut jobs, Labor Minister Membathisi Mdladlana said yesterday.
Carry Trade
As well as buying foreign currency, policy makers should consider lowering the benchmark interest rate further to deter “speculative” capital inflows that have fueled rand gains, Pawlowski said. The central bank unexpectedly cut South Africa’s main rate by 50 basis points on March 25 to 6.5 percent, the lowest in at least 12 years. Even so, the rand remains an attractive purchase for so-called carry trades given benchmark deposit returns of 0.1 percent in Japan and 0.25 percent in the U.S., Pawlowski said.
The rand declined 0.4 percent yesterday to 7.2923 per dollar. A depreciation to 8 or 8.50 per dollar would be “preferable for the economy without damaging the inflation outlook,” according to Pawlowski.
Poland’s intervention triggered the biggest decline in the zloty in two months on April 9. The central bank probably bought between 50 million euros ($67 million) and 70 million euros, said Robert Narkowicz, a trader at PKO Bank Polski in Warsaw.
The zloty lost 0.2 percent to 3.8751 per euro yesterday in Warsaw. A zloty rate of about 3.80 per euro “is okay” but a level of between 4 and 4.20 to the euro would enable faster economic growth without impacting negatively on inflation, he said.
South Africa to Follow Poland in Weakening Currency, BNP Says
April 13, 2010, 6:22 PM EDT
By Garth Theunissen
April 14 (Bloomberg) -- South Africa is likely to follow Poland’s lead in buying foreign currency to weaken its exchange rate as the rand’s 29 percent rally against the dollar since 2008 hampers the economy’s recovery, BNP Paribas SA said.
The rand has surged the most among 10 currencies in Europe, the Middle East and Africa, returning more than six times the Polish zloty’s 4.2 percent advance since 2008. The gains are pushing the rand toward a key level of 7 per dollar, which it last breached in January 2008.
“We are very, very close to the point at which the South African Reserve Bank will begin to intervene in the market to limit the strength of the rand,” Bartosz Pawlowski, an emerging-markets strategist at BNP, said in an interview in Johannesburg. “If it gets to about 7 to the dollar we think they’ll start to intervene more aggressively.”
The National Bank of Poland bought foreign currency to lower the zloty for the first time since 1998 last week and said it may do so again. While South African Finance Minister Pravin Gordhan and central bank Governor Gill Marcus have said they’re concerned by the rand’s strength, the country’s net reserves were unchanged last month, suggesting the central bank hasn’t boosted foreign currency purchases.
The Reserve Bank faces calls to weaken the rand from exporters and labor groups who say the currency’s strength is stalling a recovery from the country’s first recession in 17 years. The number of South Africans claiming unemployment benefits surged an annual 71 percent in the year through February as factories and mines cut jobs, Labor Minister Membathisi Mdladlana said yesterday.
Carry Trade
As well as buying foreign currency, policy makers should consider lowering the benchmark interest rate further to deter “speculative” capital inflows that have fueled rand gains, Pawlowski said. The central bank unexpectedly cut South Africa’s main rate by 50 basis points on March 25 to 6.5 percent, the lowest in at least 12 years. Even so, the rand remains an attractive purchase for so-called carry trades given benchmark deposit returns of 0.1 percent in Japan and 0.25 percent in the U.S., Pawlowski said.
The rand declined 0.4 percent yesterday to 7.2923 per dollar. A depreciation to 8 or 8.50 per dollar would be “preferable for the economy without damaging the inflation outlook,” according to Pawlowski.
Poland’s intervention triggered the biggest decline in the zloty in two months on April 9. The central bank probably bought between 50 million euros ($67 million) and 70 million euros, said Robert Narkowicz, a trader at PKO Bank Polski in Warsaw.
The zloty lost 0.2 percent to 3.8751 per euro yesterday in Warsaw. A zloty rate of about 3.80 per euro “is okay” but a level of between 4 and 4.20 to the euro would enable faster economic growth without impacting negatively on inflation, he said.