Rand Gains to Pare Monthly Drop as Gordhan Says Decline Overdone

The rand gained, paring its worst monthly drop since May, after South African Finance Minister Pravin Gordhan said the currency’s decline had gone too far and the government is studying responses by other emerging nations.

South Africa “can learn from others” about “defensive measures we can develop,” Gordhan told the Wall Street Journal. Central banks from Brazil to India are taking steps to bolster their currencies after an emerging-market sell-off on concern the Federal Reserve is set to reduce monetary stimulus. South Africa isn’t considering immediate measures to support the rand, Treasury Spokesman Jabulani Sikhakhane said by phone.

“The comments by the finance minister are welcome because our authorities have been relatively quiet about the rand,” Michael Keenan, a currency strategist at Absa Group Ltd. in Johannesburg, said by phone. “The rand’s strength today has been remarkable” given a slew of negative data including a widening trade deficit and slowing credit growth, he said.

South Africa’s currency appreciated as much as 1.5 percent before trading 1 percent stronger at 10.25 per dollar as of 4:20 p.m. in Johannesburg. The rand has declined 4 percent this month, the most since a 13 percent slump in May. Yields on benchmark 10.5 percent bonds due December 2026 dropped 10 basis points, or 0.10 percentage point, to 8.46 percent, crimping the increase this month to 29 basis points.

“The minister was saying the rand’s decline had gone too far and that we can learn from other countries on how to respond,” Sikhakhane said. “No way did he say that measures are being prepared to support the rand.”

Drain Liquidity

The South African Reserve Bank, which is independent from the Treasury, doesn’t target a level for the rand and has said repeatedly it won’t intervene to support the currency. The central bank said on Aug. 21 it will drain some liquidity from the money market to ensure banks depend more on its repurchase facility for funding, though it said the move wasn’t aimed at supporting the rand.

Tightening liquidity in the money markets would have the effect of raising the cost of financing rand trades, reducing currency speculation, Keenan said. The central bank probably won’t raise borrowing costs to bolster the rand, as that will stifle Africa’s largest economy, and it doesn’t have sufficient reserves to intervene in currency markets, he said.

Gordhan “has been talking up the need for global action and coordination to aid emerging markets as we enter the Fed taper period,” Peter Attard Montalto, an economist at Nomura International Plc in London, said in an e-mailed response to questions. “There seem to be no concrete policy suggestions globally let alone locally. This sort of thing is also totally counter to everything the Reserve Bank has stood for.”

Credit Growth

The rand was also buoyed after private-sector credit growth slowed more than forecast in July, giving the central bank room to leave its benchmark repurchase rate at a three-decade low for longer.

Growth in borrowing by households and companies fell for a third month to 7.4 percent, the slowest pace since April 2012, from 8.9 percent in June, the Pretoria-based Reserve Bank said today. The median estimate of 13 economists in a Bloomberg survey was for expansion of 8.6 percent. South Africa’s monthly trade deficit swelled to 14.2 billion rand in July, from 7.7 billion rand in June, more than the 9 billion rand median estimate in a Bloomberg survey.

“Subdued credit growth suggests that demand-driven inflation remains in check,” Johannes Khosa, an economist at Nedbank Group Ltd. in Johannesburg, said in an e-mail. “The Monetary Policy Committee will continue to strike a balance between high inflation and the still-poor economic growth outlook by maintaining the current policy stance well into 2014.”

Foreign investors sold a net 2.15 billion rand of South African stocks and bonds yesterday, bringing outflows from the nation’s debt and equity markets in the first four days of the week to 5.22 billion rand, according to JSE Ltd. data.

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