BRICS Member States are not actively dumping billions of dollars worth of US treasuries as a means of weakening the strong US dollar before the end of the year as part of the de-dollarisation initiatives.
This comes after reports emerged on Tuesday that India, Brazil, and China were consistently dumping the US treasuries through offloading $18.5 billion worth of government bonds over the past 30 days.
US-based finance and crypto publication reported that the trio were looking to keep the US dollar from ending on a high against their respective local currencies.
This as the US dollar is now at a 10-month high against BRICS currencies and the developing nations are selling US treasuries to keep their currency from ending on a low.
Watcher Guru reported that China sold the highest in US Treasuries last month by offloading $16.4 billion worth of government bonds while Chinese institutional investors sold another $5.1bn in US stocks.
India also sold $1.5bn worth of US government-backed securities during the same period last month and Brazil sold $600 million of its US treasury holdings at the same time.
The rising US dollar has been worrisome for BRICS as it impacts their import and export sector, and the BRICS nations discussed
Old Mutual Wealth investment strategist Izak Odendaal yesterday (WED) said the Watcher Guru report was a bit misleading as the talk of ‘dumping’ the US $ assets made it sound like they were getting rid of US dollars as these were losing value.
Instead, Odendaal said this was a forced sale to protect domestic currencies from falling against the dollar.
“This is by no means a coordinated attempt by BRICS countries to de-dollarise. In contrast, it reinforces how dominant the US dollar is. The dollar has been very strong of late as US interest rates will clearly remain higher for longer,” Odendaal said.
“From a South African point of view, the strong dollar has already put a lot of pressure on the rand, and indirectly, has put upward pressure on local interest rates.
“The Reserve Bank does not actively intervene to stabilise the currency by buying or selling US dollar assets. However, it tends to keep interest rates fairly elevated as a way of insuring against a disorderly depreciation of the rand.”
The South African Reserve Bank (Sarb) is expected to implement a further 25 basis points hike next month, taking interest rates from 8.25% to a historic 8.5% per annum to fight stubborn inflation which rose from 4.7% in August to 5.4% in September.
Cyclical factors such as high food and fuel prices and rising interest rates – and a structural factor in the form of load shedding – presented themselves as the highest risks to consumer finances in the past year.
Citadel's chief economist Maarten Ackerman said that investors should prepare that interest rates will remain higher for longer, given the stickiness in inflation locally and abroad.
“In the next few years, we’ll probably remain stuck in a stagflation scenario, where we struggle to get growth going and inflation remains sticky,” Ackerman said.