Weak rand seen as a ‘shock absorber’

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IOL pic feb27 pravin gordhan budget speech 2014 Reuters Finance Minister Pravin Gordhan delivers his 2014 Budget speech in Parliament in Cape Town on February 26, 2014. South Africa cut this year's growth forecast to 2.7 percent, saying deep challenges persisted after a 2009 recession. Picture: Mike Hutchings

Cape Town - Pravin Gordhan 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,” the finance minister said.

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

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 before his Budget speech yesterday.

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?”

The central bank governor 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 US.

Tapering by the US Federal Reserve began last month and has seen the rand weaken by about 8 percent. – Sapa

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