Carry trade behind volatile rand - Gordhan
November 20, 2009
South Africa's Finance Minister Pravin Gordhan on Friday blamed the carry trade for the rand currency's recent volatility in remarks broadcast on national radio.
"What is happening at the moment is that interest rates are very low in other parts of the world and there's a lot of cash in the system internationally and that cash is looking for places to invest," he told SAFM radio.
"It is that inflow of money - not only in South Africa but elsewhere in the world - which is giving us the volatility we actually have at this point in time," he said.
At 7.0 percent South Africa's base rate is relatively higher than that of other countries and has increased the appeal of the rand in terms of carry trade - where investors borrow low-yielding currencies to invest in high yielders.
The rand has gained more than 20 percent against the dollar since the start of January, making it one of the best-performing emerging market currencies this year.
In the past few weeks, it has moved in a wide range of between 8.25 and 7.3325 to the dollar, vulnerable to changes in investor sentiment. Gordhan said high-yield seeking capital could be responsible for the big moves.
Although the currency's strength has raised fears it could hit exports, central bank Governor Gill Marcus said on Thursday the bank would not intervene in the market to weaken it, despite calls from trade unions.
Reporting by Phumza Macanda
|
|
