London - South African Finance Minister Pravin Gordhan said the rand is undervalued and called on the US Federal Reserve to be more “self aware” of the impact its actions have on emerging markets.
The Fed’s failure last week to acknowledge the volatility in emerging markets in its Federal Open Market Committee statement was “regrettable,” Gordhan said in an interview today at a conference hosted by Bloomberg LP in Johannesburg.
The rand has slumped 6 percent against the dollar this year, the worst performer of 16 major currencies tracked by Bloomberg, adding to its 19 percent depreciation last year.
Emerging market currencies have come under pressure since the Fed began reducing its monetary stimulus that’s helped to fuel capital inflows.
South Africa’s economy has also been buffeted by slower global demand and a series of strikes in the mining and manufacturing industries.
“We need to ensure that these peaks and troughs in sentiment are avoided because they’re neither good for the financial markets, nor are they good for the real economy, but more importantly not for the citizens of our country,” Gordhan said.
The rand strengthened less than 1 percent against the dollar by 10:58 a.m. in Johannesburg to trade at 11.1132.
The South African Reserve Bank unexpectedly raised its benchmark interest rate by half a percentage point to 5.5 percent last week as it forecast the weaker rand will push inflation outside its 3 percent to 6 percent target.
The move failed to stem the rand’s decline, with the currency sliding 2.5 percent against the dollar after the rate decision on January 29.
Export Gains
Gordhan said the rand’s weakness after the rate increase wasn’t a function of domestic economic factors.
While a weaker rand is adding to pressure on inflation, it may help benefit exporters.
“We did want a weaker rand,” Nonkululeko Nyembezi-Heita, outgoing chief executive officer of ArcelorMittal South Africa, the continent’s biggest steelmaker, said at the Bloomberg conference today.
“We would have preferred it to come when global demand was strong.”
South Africa’s ruling African National Congress may face a reduced majority in this year’s election, according to opinion polls.
The ANC has won every election since the first multiracial one in 1994 with more than 60 percent support.
Voter loyalty is being undermined by the government’s failure to tackle rising joblessness, poverty and a series of corruption scandals that have tainted senior ANC leaders, including President Jacob Zuma.
Gordhan said he doubted the opinion poll findings that the ANC faces a reduced majority.
The party has a record of “balanced” economic policies and is unlikely to shift toward more populist programs if the ANC loses support, he said. - Bloomberg News