2001-10-14: Statement by the Governor of the South African Reserve Bank Mr T.T. Mboweni
Last Modified Date:
2020-10-08, 08:15 PM
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The 11th September 2001 attacks in the USA and the ensuing international tension and conflict, have impacted on many of the world's financial markets, including our own. In particular, the recent volatility in the domestic foreign exchange market is of concern to the authorities since the interests of South Africans and non-resident investors are of paramount importance. The Reserve Bank wishes to reiterate its position that, with the adoption of an inflation-targeting monetary policy framework, it no longer has any intermediate policy targets or guidelines such as the exchange rate or growth in the monetary aggregates. The authorities are committed to continue allowing the value of the rand to be determined by the market, but are concerned that excessive volatility in the foreign exchange market negatively influences inflation, business decisions and the economy as a whole. The Reserve Bank stands ready to take appropriate firm steps against trading activities inconsistent with existing rules and regulations. The enforcement of existing rules serves to ensure that only legitimate transactions take place in the foreign exchange market. This does not restrict, for example, the ability of a non-resident investor to either hedge or repatriate the sale proceeds of an investment in South Africa. It does, however, exclude the financing of short rand positions in the domestic markets, which is consistent with the requirement that domestic borrowing by non-resident investors is subject to certain restrictions. This communication should not be construed as an attempt to restrict the activities of banks in the South African markets, provided they adhere to the existing rules and regulations. Normal commercial and financial transactions remain unaffected. The net open foreign currency position (NOFP) has declined from US$23,2 billion at the end of September 1998 to US$4,8 billion. Given the negative perceptions resulting from the NOFP, the Reserve Bank reduced this position by purchasing foreign currency in the domestic foreign exchange market, which may have contributed to the depreciation of the rand over this period.The South African Government's exposure to foreign currency risk, including the NOFP, as a percentage of GDP, is now on par with those prevailing in certain G10 countries. With the NOFP at a more comfortable level, any perceived vulnerability has declined significantly. The Reserve Bank is consequently in a position to alter its approach in dealing with the NOFP.In future, the Reserve Bank will not intervene by purchasing foreign exchange from the market for purposes of reducing the NOFP. The NOFP will be expunged from cash flows derived from the proceeds of Government's offshore borrowings and privatisation. Accordingly, it is no longer deemed necessary to publish a special monthly report on the forward book and the NOFP. In line with international practice, this information will be published monthly on the Reserve Bank's Internet site in accordance with the specifications of the IMF's Special Data Dissemination Standard.Lastly, I wish to emphasise that the South African authorities remain committed to the orderly and gradual process of relaxation of exchange controls.