Bullion surge lifts foreign reserves in largest jump since January
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THE CONTINUING rally in the price of gold has seen South Africa’s net foreign exchange reserves climbing to a four-month high in May as the yellow metal rose on the commodity supercycle.
The SA Reserve Bank (SARB) said yesterday that the country’s foreign exchange reserves rose to $54.14 billion (R726.25bn) from $53.69bn in April – the largest jump since January, mainly due to the increase in the US dollar gold price as gold price increased 7.6 percent month-to-month to $1 904.30 per ounce.
SARB said that it has also noted a $0.5bn increase in gold reserves to $7.67bn.
The central bank said matured foreign exchange swops conducted for sterilisation and liquidity management purposes, as well as valuation adjustments due to asset price and currency movements also played a role in the net foreign exchange reserves.
Investec economist Kamilla Kaplan said the increase fully offset the effect on gross reserves of the $0.10bn decline in foreign exchange reserves to $43.88bn.
Kaplan said the dollar depreciated on a trade weighted basis in May, and the associated revaluation adjustments could be approximated to an increase in foreign exchange reserves of $0.13bn.
“However, foreign exchange reserves decreased by $0.10bn overall, owing to the maturing of foreign exchange swops,” Kaplan said.
“According to the SARB notice on reserves, foreign exchange swops are conducted for sterilisation and liquidity management purposes.”
SARB said the increase in the forward book largely reflected liquidity injection swops conducted during April which matured during May, offset by maturing swops conducted for sterilisation purposes.
It said these factors were partially offset by foreign exchange payments made on behalf of the government.
Old Mutual Wealth investment strategist Izak Odendaal said South Africa received a huge injection from higher commodity prices.
Odendaal said exports in the first four months of the year rose to R575bn compared with R376bn for the same period in 2020, and R395bn for the first four months of 2019. He said the trade surplus was at a record level in April as a result, with precious metal exports providing the biggest boost.
“This is mainly the result of price, not volume increases,” Odendaal said.
“To grow export volumes will require substantial investment in expanding production in mining and manufacturing, electricity supply and improved rail and port infrastructure.”