June 6, 2011 / 8:36 AM / 9 years ago

S.Africa's Davies says rand overvalued

JOHANNESBURG (Reuters) - South Africa’s rand currency is overvalued and the government is currently discussing what to do about it, the country’s trade minister said on Monday.

South African Minister of Trade and Industry Rob Davies attends a session at the World Economic Forum (WEF) in Davos, January 27, 2011. REUTERS/Christian Hartmann

“Do we have a desirable currency? We don’t,” Rob Davies said at a media briefing in suburban Johannesburg.

“The rand is overvalued. What can we do about it? That is a difficult question... The discussion about what are going to do about it is ongoing.”

The rand has gained about 14 percent against the dollar in the last 12 months, drawing concern from both manufacturers and unions.

A stronger rand is a negative for exporters, as it eats into profits when revenues from abroad are brought home.

The rand has helped to contain inflation, which has been inside the central bank’s 3 to 6 percent target band since February 2010.

Finance Minister Pravin Gordhan said last month South Africa was fortunate to have a stronger rand and the goverment would not intervene to weaken the currency.

South Africa last year spent over 15 billion rand helping the Reserve Bank to accumulate reserves to limit rand gains.

The bank has said it does not target a level for the exchange rate but will continue to build reserves “as and when” appropriate.

South Africa last year rejected the idea of taxing capital inflows such as those implemented by Brazil and other emerging markets.

Manufacturers would rather see the rand at about 8.50 to the dollar.

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