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South Africa Committed to Flexible Currency, Gordhan Says

Nov. 19 (Bloomberg) -- South Africa has no interventions in place “to secure the currency” as the government is committed to a flexible exchange-rate regime, Finance Minister Pravin Gordhan said.

The rand is an “important shock absorber” to ensure that economic growth and interest rates are less volatile, Gordhan said in a written reply to a parliamentary question dated Oct. 11 and e-mailed today.

The rand has slumped 17 percent against the dollar this year, making it the worst performer of 16 major currencies tracked by Bloomberg. The inflation rate in September fell to 6 percent, the upper end of the central bank’s target range, after exceeding it in the previous two months.

“Although changes in the exchange rate also affect inflation, its pass-through to consumer inflation has been relatively muted,” Gordhan said. “A competitive exchange rate also plays a significant role in the development of competitive export industries.”

The rand fell 0.2 percent to 10.1644 against the dollar as of 5:40 p.m. in Johannesburg.

The South African Reserve Bank will probably keep its benchmark interest rate unchanged at 5 percent on Nov. 21, according to all 22 economists surveyed by Bloomberg, as it tries to balance weak economic growth with rising inflation concerns because of the rand’s depreciation.

“Currency flexibility plays an important role in supporting macroeconomic stability,” Gordhan said. “A flexible exchange rate allows the Reserve Bank to set monetary policy and interest rates based on domestic considerations rather than international developments.”

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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