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South Africa Currency Reserves Fall by $10 million


South African gold and foreign-currency reserves dropped $10 million in July 2009 due to a fall in the price of bullion that compensated an increase in dollar purchases by the central bank. Reserves declined from $35.76 billion in June 2009 to $35.75 billion in July 2009, according to the South African Reserve Bank in Pretoria. Net reserves increased from $34.57 billion to $34.67 billion from June to July.


The Reserve Bank’s bid to boost reserves to pay for rising imports was weakened by the fall in the price of gold from June to July, from $945.56 to $935.05. Russelll Lamberti, an economist at Econometrix Treasury Management said, “We would have expected to see more intervention from the Reserve Bank.” He added that the bank is focusing on price stability and is working to keep its inflation goals.


The central bank has decreased its foreign currency purchases since 2008, when the global recession affected investors’ confidence for riskier assets. The country needs to increase its foreign currency reserves to help pay for imports. The current account deficit has reached 7 percent of GDP in the first quarter of 2009.



South African gold and foreign- currency reserves fell $10 million in July as a decline in the price of bullion offset an increase in dollar purchases by the central bank.

 

Gross reserves fell to $35.75 billion last month from $35.76 billion in June, the Pretoria-based South African Reserve Bank said on its Web site today. Net reserves rose to $34.67 billion from $34.57 billion.

 

The gold price averaged $935.05 an ounce last month, down from $945.56 in June, undermining the Reserve Bank’s bid to boost reserves to pay for rising imports. Reserves were forecast to increase to $36.1 billion last month, according to the median estimate of four economists surveyed by Bloomberg, after the rand gained to a 11-month high, making it cheaper for the central bank to buy dollars.

 

“We would have expected to see more intervention from the Reserve Bank,” said Russell Lamberti, an economist at Econometrix Treasury Management in Johannesburg. The Reserve Bank is focusing on “price stability” and seeks to not “jeopardize its inflation goals” by causing the rand to weaken, he added.

 

The Reserve Bank left its benchmark interest rate at 7.5 percent last month as rising wage and energy costs threatened to keep inflation above the target range of 3 percent to 6 percent. Inflation reached 6.9 percent in June.

 

The central bank has slowed the pace of buying foreign currencies since last year as the global recession reduced investors’ appetite for riskier, emerging-market assets. Africa’s largest economy needs to increase foreign currency reserves to help pay for imports as the current-account deficit, the broadest measure of trade in goods and services, reached 7 percent of gross domestic product in the first quarter.

 

The central bank added $11 million to foreign-exchange reserves last month, after increasing them by $49 million in the previous month. Gold reserves, which make up about 10 percent of gross reserves, fell $24 million in July, the central bank said.


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