South Africa’s Rand Weaker Than Needs Be, Gordan SaysJaco Visser and Amogelang Mbatha
South Africa’s rand, the worst performer this year among emerging-market currencies after Japan’s yen, is weaker than it needs to be, Finance Minister Pravin Gordhan said.
“There is no doubt that the rand might be a lot more devalued than it needs to be at this point in time,” he told reporters in Johannesburg today.
The currency’s volatility is driven by sentiment and the performance of the euro, he said. The rand, which has slumped 6.6 percent against the dollar this year, strengthened 0.7 percent to 9.0697 by 4:42 p.m. in Johannesburg. Its three-month implied volatility versus the dollar, which reflects options traders’ expectations of future price swings, has dropped 30 basis points this week to 12.7 percent. Still, it’s the most volatile major currency after the yen, according to data compiled by Bloomberg.
South Africa’s current-account deficit, which has fueled a slump in the rand, “is watched carefully” and is set to narrow, Gordhan said.
The deficit on the current account, the broadest measure of trade in goods and services, narrowed to 6.5 percent of gross domestic product in the fourth quarter from 6.8 percent in the previous three months, the central bank said on March 12.
The nation’s exports have come under pressure since last year because of slower global growth and mining strikes. South Africa relies on foreign investment in stocks and bonds to fund the current-account gap, inflows that have fluctuated as investors’ risk perception increased.
“Investors still find South Africa’s bond market very attractive, they find the interest rate differentials positive for them,” Gordhan said. “They are making good yields from here as compared to many other parts in the world.”
Yields on South Africa’s rand-denominated benchmark government bonds due in December 2026 rose 2 basis points, or 0.02 percentage point, to 6.85 percent.