October 13, 2010 / 9:19 AM / 9 years ago

S.Africa eyes competitive FX rate 'over time': Finance Minister

CAPE TOWN (Reuters) - South Africa would like to achieve a competitive exchange rate over time and create policies that guard better against currency volatility, said Finance Minister Pravin Gordhan on Wednesday.

South Africa's Minister of Finance Pravin Gordhan delivers the 2010 budget speech at parliament in Cape Town February 17, 2010. REUTERS/Nic Bothma/Pool

The country’s rand has gained over 28 percent against the dollar since the beginning of 2009, weighing on exports and economic growth.

In a written reply to parliament, Gordan said the government aimed for “sufficient policy room in the event of a worsening of economic conditions to respond and enable the exchange rate to cushion the economy against financial volatility”.

So far, the National Treasury efforts to deal with the soaring rand have focused on supporting the Reserve Bank in building its reserves.

While some other emerging markets have implemented capital controls, South Africa — which needs foreign capital to fund its current account deficit — has shied away from such measures.

The idea gained little support at the ruling ANC’s policy conference in September, though some analysts see a slim chance of controls being introduced.

VULNERABLE TO GLOBAL SHOCKS

Gordan said government wanted to build South African resilience to external shocks as the country remained vulnerable to the risks of slower growth in the developed world.

“The risk of increased trade protectionism in the wake of a double dip (recession) would further reduce global growth and could harm our exports even more,” said Gordhan.

South Africa, whose main trading partner is the European Union, is actively pursuing ties with BRIC nations Brazil, Russia, India and China to offset weakening exports elsewhere.

Its economic growth slowed to 3.2 percent in the second quarter as mining contracted and the manufacturing sector slowed, partly due to weak exports.

“The low growth rates in South Africa suggest we are not able to take advantage of upswings in global activity as they occur and we remain vulnerable to slower activity,” he said.

Gordhan added the Treasury would adjust policy as necessary to maintain macroeconomic stability and support a feasible rate of economic growth, which he previously said needed to reach 7 percent a year for the next 20 years to cut into a stubbornly high unemployment rate of more than 25 percent.

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