JOHANNESBURG - SOUTH Africa’s international liquidity position remained vulnerable to currency fluctuations last month as gross reserves increased modestly though net foreign reserves edged lower.
The South African Reserve Bank (SARB) yesterday said gross reserves increased by a moderate $102 million (R1.54 billion) to $53.8 billion in November, from $53.7bn the previous month.
Net foreign reserves, however, fell by $107m to $51.2bn in November from $51.3bn in October due to a notable decline in the gold price.
SARB said the changes were mainly due to foreign exchange swops conducted for liquidity management purposes, matured foreign exchange swaps conducted for sterilisation purposes, payments made on behalf of government and valuation adjustments.
However, these factors were offset by a notable decline in the US dollar gold price.
The decline in gold reserves was concomitant with the 5.9 percent month-on-month drop in the gold price to $1 769 an ounce.
The value of foreign exchange reserves increased by $0.5bn to $44.1bn in November.
SARB said the remaining $0.2bn, of the total $0.5bn, increase in foreign exchange reserves was accounted for by foreign exchange swops conducted for liquidity management purposes, matured foreign exchange swops conducted for sterilisation purposes, payments made on behalf of government.
According to the International Monetary Fund (IMF), the external risk is mitigated by the large domestic institutional investor base, the low share of foreign currency and the short-term nature of the debt.
South Africa’s third quarter GDP today is expected to see a substantial expansion of up to 50 percent quarter-on-quarter, seasonally adjusted, annualised, but also an uneven outcome between sectors.
However, concerns have been growing over a Covid-19 resurgence and the impact to the economy after the introduction of targeted restrictions in parts of the country.
Investec’s Kamilla Kaplan said revaluation effects, related to dollar depreciation last month, would have increased the value of foreign exchange reserves by an estimated $0.30bn.
She said the vulnerability partially stemmed from low international reserves buffers.
Offshore investors sold a net of R15.48bn, or $1.02bn, of South African stocks last week and bought R5.04bn in bonds. “The IMF has previously advised that foreign exchange reserves should be accumulated when opportunities arise to strengthen the ability to deal with foreign exchange liquidity shocks,” Kaplan said.
“South Africa’s external vulnerability remains relatively elevated. Increased government debt levels, to a projected peak of 95 percent of GDP in 2025/26, and the underperformance in economic growth exacerbate external risk.”
BUSINESS REPORT