Reserve Bank loss of about R1 billion

The SA Reserve Bank will report an after-tax loss of about R1 billion for the 2009/10 financial year owing to its intervention in the currency market, according to governor Gill Marcus. In a speech at the Bureau for Economic Research, she said that despite the "significant foreign currency purchases at times, the rand has remained at elevated levels on a trade-weighted basis".

There has been ongoing pressure on the Reserve Bank to weaken the rand from exporters and Cosatu, as well as from Economic Development Minister Ebrahim Patel and Trade and Industry Minister Rob Davies. Some economists also support measures to contain the currency's appreciation because a strong rand reduces the rand earnings of exporters and is, therefore, a drag on economic growth.

Marcus said: "While it may appear that in the past months there has been minimal reserve accumulation, our overall reserves are reported in dollars, and the recent weakening of the euro and sterling have resulted in significant valuation changes which have, at times, dwarfed the net accumulation." Reserves currently stand at $42bn.

The losses arose from the "wide interest rate differential", Marcus explained. There is an opportunity cost to the currency transactions because the rands could otherwise have been invested at a higher interest rate. Benchmark central bank rates in the US, the EU and Japan are close to zero compared with the local rate of 6.5 percent.

Source: Business Report