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Reserve Bank Governor Gill Marcus. Photo: Leon Lestrade

A costly attempt to weaken the rand failed dismally last year, according to Reserve Bank governor Gill Marcus. Marcus, who yesterday kept the bank’s repo rate on hold at 5.5 percent, said the bank had spent just more than R53 billion buying foreign currency. But despite the outlay, the rand rose 12 percent against the dollar over the year.

“In my view that’s a lot of money,” Marcus said. “If you have spent that amount of money and the rand has appreciated you have to weigh up what you are doing it for.”

She said the bank had a clear commitment to increasing reserves “as and when it’s possible” but “whether that will impact on the appreciation of the currency is a moot question. I am not sure if any of the countries that have intervened have been able to show a depreciation because of that.”

Her comments came a day after former World Bank economist Joseph Stiglitz urged South Africa to manage its unit to make its goods more competitive. His views are in line with those of union federation Cosatu and Economic Development Minister Ebrahim Patel.

Marcus highlighted the role of the strong rand in moderating the effect of sharply rising oil prices. “The domestic petrol price, cushioned to some extent by exchange rate developments, has increased by 66c a litre since September 2010, and by 11 percent over the past year. Since September, the rand exchange rate has offset the petrol price increase by a cumulative 45c a litre.”

In other words, the price of 95 octane unleaded petrol, now at R8.62 a litre at inland pumps, would be more than R9.

Currency traders told Reuters the central bank was in the market again yesterday accumulating foreign exchange. But the exchange rate, which spiked over R7.10 to the dollar just ahead of the meeting, fell back somewhat as the currency strengthened after the meeting. It ended the day at R7.07.

The decision to hold the repo rate unchanged, after a cumulative reduction of 6.5 percentage points since December 2008, was no surprise to the market.

For the first time in a year, the bank’s monetary policy committee (MPC) revised its inflation forecast upwards. At previous meetings over the period the MPC has either left the forecast unchanged or revised it downwards. The bank now expects inflation to average 4.6 percent this year and 5.3 percent next year. The previous forecast was for 4.3 percent and 4.8 percent, respectively.

Marcus cited oil as a major risk factor. “Having fluctuated in the range of $70 to $80 a barrel for much of 2010, the price of Brent crude began to increase in late November and is (now) around $98 a barrel.”

Marcus struck a moderately optimistic note on the global economy. She said there was increasing confidence that the recovery would be sustained.

And she forecast that growth in South Africa’s gross domestic product would average 3.4 percent his year, marginally higher than the previous forecast of 3.3 percent. - Business Report