South African Finance Minister Pravin Gordhan said the rand’s weakness is related to “unnecessarily negative” sentiment toward the country and the currency may be weaker than it should be.
“Partly it’s driven by the tie-up with the euro and the dollar,” Gordhan said today in an interview with Bloomberg TV in Cape Town, where he is attending the World Economic Forum on Africa. “Partly it’s linked to sentiment with South Africa, which is unnecessarily negative. Some would say it’s slightly more depreciated than it should be, but we don’t hedge our bets in any particular direction.”
The rand has slumped 5.7 percent against the dollar this year, making it the worst performer of 16 major currencies tracked by Bloomberg after the yen. Africa’s biggest economy grew less than forecast last year after a wave of mine and transportation strikes hampered output.
The currency gained as much as 0.5 percent to 8.9596 against the dollar today and was trading at 8.9767 per dollar as of 2 p.m. in Johannesburg.
Gordhan said the Reserve Bank is probably monitoring closely the actions that central banks around the world are taking to bolster economic growth.
“I’m sure that they are watching carefully what’s happening in Korea or Sweden or Australia, all of which have done interesting things, if you like, in terms of their central banks in order to address their economic environment,” he said.
Investors are increasing bets South African policy makers will follow the European Central Bank and Reserve Bank of Australia in cutting interest rates at the next meeting on May 23. The benchmark rate has been kept unchanged at 5 percent since a reduction in July.
Forward-rate agreements, used to speculate on interest rates, starting in February dropped nine basis points, or 0.09 percentage point, to 4.72 percent. That’s the lowest since July when the central bank last cut interest rates. The yield on one-year interest rate swaps fell 26 basis points over the past month to 4.87 percent.
“Part of the adapted mandate that we’ve given to the central bank is to, apart from looking at price stability, keep a careful watch on employment and growth numbers as well and I’m sure they’ll try and find the right balance,” Gordhan said.