Weak rand a 'shock absorber': Gordhan

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Copy of Copy of Copy of IOL pic may3 new rand money Reuters .

Cape Town - Finance Minister Pravin Gordhan on Wednesday looked to the bright side of the weak local currency, terming the rand a “shock absorber”.

“The rand remains an effective shock absorber against global volatility,” Gordhan said in his last budget speech before national elections.

“Recent movements of the currency have been supportive of export growth while reducing the country's reliance on capital flows.”

The sentiment was echoed by Reserve Bank governor Gill Marcus, who said the rand was acting as a stimulant to exports and also, potentially, to local manufacturing as the price of imports went up.

“South Africa follows a flexible exchange rate approach precisely because the exchange rate is the shock absorber, which is doing its job,” Marcus told a joint media briefing with Gordhan ahead of his budget speech.

She added: “The depreciating currency actually acts as a stimulus, if you look at the actual revenue numbers... it also enhances our competitiveness.

“The other element of it is that your imports become more expensive, as we have seen. It is an opportunity again for South African business to look at what its production is like. Is there a possibility of import substitution that takes place?”

Marcus said this did not mean that authorities were encouraging currency depreciation, but it was “a fact” that flowed from the post-crisis normalisation of developed economies, in particular the United States.

Tapering by the US Federal Reserve began last month and has seen the rand weaken by some eight percent.

Sapa


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