Mboweni defends a stable rand

Sectors of the economy that were taking financial strain from the rand at its current levels should “learn to live with reality”, Reserve Bank governor Tito Mboweni said last week.

He told business leaders and government officials at a round-table conference organised by the Economist Intelligence Unit research company that the rand’s volatility had declined substantially, recording swings in its value of just 10% in October from as much as 30% two years ago.

“I’m aware that R6 to the dollar puts some strain on the mining sector, but the miners have to learn to live with reality,” Mboweni said. He suggested that although the Bank did not target the exchange rate, it was comfortable with the current state of affairs.

Those who questioned whether the economy could grow with the rand at its present levels “forget that the economy is actually growing very strongly at the moment”, Mboweni said.

“Certainly, it would be difficult for any policy maker to stand up and say ‘I want to see a collapsed currency’, because a weaker currency would contribute to higher inflation, which would be to the poor’s detriment,” he said.

“If the macroeconomic framework is proper and is followed on by detailed microeconomic reforms, the economy will be able to grow much faster than it is at the moment,” Mboweni said.

The governor questioned assumptions that the total abolition of foreign-exchange controls would precipitate a massive outflow of capital, which could weaken the currency, saying those who believed this “will be disappointed”. Mboweni, who recently called for exchange controls to be scrapped, declined to elaborate.

Mboweni’s comments on the rand followed those earlier in the day of a senior trade and industry department official, who argued that in the face of a strengthening currency, South African manufacturers and exporters needed to find new ways to remain competitive.

Sectors, such as the clothing and textile industry hammered by increased competition from imports brought about by a stronger rand, could remain viable, Iqbal Meer Sharma, an acting deputy director-general in the department, said.

With government’s aim to boost manufacturing and exports to raise economic growth, companies needed to think differently about dealing with a strong rand, Sharma said.

“You’ve got to move up the value chain. You cannot continue to produce products where there is margin pressure on you,” he said

Source:Business Day Deal with it, Mboweni tells rand worriers Business Day, 22 November 2005

For text: http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A116485

FMF Policy Bulletin/ 29 November 2005
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