The South African Reserve Bank may consider intervening in the currency market if risks to financial markets worsen following the rand’s collapse to a record low.
“In the event of developments that threaten the orderly functioning of markets or that may have financial stability implications, the SARB may consider becoming involved in foreign-exchange markets to ensure orderly market conditions,” the central bank said in statement on its website.
The currency of Africa’s most-industrialized economy weakened as much as 8.5 percent to an all-time low of 14.0682 against the dollar on Monday before trimming losses. South African assets are under pressure as the price of commodities from platinum to iron ore retreat and concern mounts that economic growth is slowing in China, its top export destination.
“While we are concerned about excessive volatility, the SARB is committed to the exchange rate of the rand being set by market forces,” the bank said. This “does not suggest that the SARB is completely indifferent to exchange rate movements.”
The Reserve Bank has been reluctant to intervene in foreign-exchange markets to influence the rand since it ran up debts of as much as $24 billion in 1998 defending the currency against speculators. Former Reserve Bank Governor Tito Mboweni helped to eliminate the debt in 2003 and start building reserves, which now stand at $45.82 billion.
The rand traded 1.3 percent lower at 13.1410 per dollar as of 6:36 p.m. in Johannesburg.
African central banks from Nigeria to Uganda have been running down their foreign-currency reserves and tightening monetary policy to prop up their currencies. South African policy makers raised the benchmark repurchase rate by 25 basis points to 6 percent on July 23, the first move in a year.
“There are two ways they could intervene,” Colen Garrow, chief economist at Lefika Securities in Johannesburg, said by phone. “One is to call an early unscheduled MPC meeting and put rates up. And if they should do that, then the markets will be super volatile. The other alternative is to throw reserves at the rand and that’s not going to help.”