SOUTH Africa’s liquidity position could deteriorate slightly after gross reserves slipped in September as the ongoing global recovery reduced investors’ demand for the safe-haven commodity, gold, in favour of other riskier and high-yielding assets.
The SA Reserve Bank (SARB) yesterday said foreign exchange reserves fell by $1.35 billion to $57.05bn in September, from a record of $58.41bn in August.
The SARB said the decline was due to the decrease in the US dollar gold price, the appreciation of the US dollar against other currencies, and foreign exchange payments made on behalf of the government.
The rand depreciated by 4.1 percent against the US dollar during the month, while gold reserves slid by $350 million to $6.96bn.
Investec economist Lara Hodes, however, said reserves remained elevated owing to the Special Drawing Rights (SDR) allocation approved by the International Monetary Fund (IMF) which became effective in August.
The IMF's SDR allocation to South Africa amounted to $4.2bn.
“The moderate decline in September’s gross reserves stemmed largely from the decrease in foreign exchange reserves to $43.45bn from a prior $44.39bn and to a lesser extent from the fall in gold reserves holdings,” Hodes said.
“Revaluation effects pertaining to the appreciation of the US dollar against other currencies accounted for part of the decrease in foreign exchange reserves, while the rest was attributable to foreign exchange payments made on behalf of the government.”
The SARB, however, is expected to maintain its holdings of reserves around current levels in the months ahead.
Nedbank senior economist Nicky Weimar said recent indicators show that global growth continued to recover, albeit at a slower pace, which was likely to continue boosting sentiment and demand for higher-risk assets.
Risk appetite flickered to life on the markets yesterday as progress on debt ceiling talks in the US and Russia’s offer to stabilise energy markets lifted global sentiment.
Weimar said this was likely to lift investor sentiment against the backdrop of growing speculation on the timing of the commencement of US interest rates’ normalisation.
“However, some reversal could occur once the US Federal Reserve starts reducing its bond purchase programme,” Weimar said.
“South Africa will likely benefit from the improvement in risk sentiment on the back of relatively attractive interest rates, but the upside will be contained by concerns about the local economy's fragile state and fiscal challenges.”
BUSINESS REPORT ONLINE