Rand Strengthens After Foreign Reserves Show No `Aggressive' Intervention

The rand rose to within two cents of a one-month high versus the dollar after a report showing foreign reserves fell last month eased concern that policymakers are aggressively buying dollars to weaken the currency.

South Africa’s currency appreciated as much as 0.5 percent to 6.8613 per dollar, from a close of 6.8963 yesterday when the currency reached 6.8453, the strongest level since Nov. 10. The rand gained 0.3 percent to 6.8727 by 4:15 p.m. local time.

Foreign reserves fell for the first time in three months in November as a rally in the dollar reduced the value of holdings in foreign currencies, undermining attempts by the central bank to step up dollar purchases to weaken the rand. Policy makers bought $655 million in foreign currency last month, helping to limit the drop in reserves, which fell 1.9 percent to $43.4 billion in November, the Pretoria-based Reserve Bank said in its website today. Net reserves were unchanged at $43.1 billion.

“This is not what you’d describe as an aggressive build up of foreign reserves but rather modest, opportunistic buying that occurs from time to time,” Kevin Lings, chief economist at Stanlib Asset Management in Johannesburg, said by telephone. “The global search for yield is still the main driver for the rand -- at the moment the only game in town is to keep money going into emerging markets.”

South Africa’s currency has surged 37 percent since the start of last year as interest rates in developed nations fell to near zero, encouraging investors to place their money in higher-yield markets. The 5.5 percent benchmark rate in South Africa compares with deposit returns of 0.1 percent in Japan and 0.25 percent in the U.S. making the rand an attractive purchase in this strategy, known as the carry trade.

Weaken the Currency

The gain in the rand has prompted manufacturers and the Congress of South African Trade Unions to call for measures to weaken the currency, which they say is undermining economic growth and worsening unemployment. Finance Minister Pravin Gordhan and central bank Governor Gill Marcus have said policy makers will continue building foreign exchange holdings to stem rand appreciation.

Government bonds rose in South Africa, with the benchmark 13.5 percent security due September 2015 climbing 12 cents to 124.43 rand. The yield on the bond declined 3 basis points, or 0.03 percentage point, to 7.33 percent.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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