Slight uptick in SA foreign reserves in December

SOUTH Africa’s net foreign reserves rose in December to $42.927bn, from $42.689bn in November,Picture: Gallo Images

SOUTH Africa’s net foreign reserves rose in December to $42.927bn, from $42.689bn in November. Gross reserves also jumped to $50. 722bn from $50.297bn, Reserve Bank data showed.

However, the forward position, which represents the Bank’s unsettled or swap transactions, decreased to $1.196bn from $1.732bn.

Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy. But analysts calculated that the slight rising of the country’s international reserves is lower compared to previous years, but again strong enough to pay for imports and rescue the rand if the need arise.

Some calculated that the latest foreign exchange reserves rise in December on the back of an international bond issue. “The change in foreign reserves was primarily the result of the SARB having absorbed the proceeds stemming from the government’s international bond issue.”

Any meaningful reserve building is likely to continue being conducted via the forward position and at a modest pace such that the Reserve Bank’s actions do not affect the level of the currency.

“The rand remained strong throughout December on clarity on the ANC’s election of Cyril Ramaphosa. Such positive developments will keep the Reserve Bank from accumulating large volumes of foreign exchange,” currency analyst Abram Mohomed said.

It is important that the Reserve Bank sustains a good level in this net external position such as to be able to effect international transactions of its own, he said – or to be able to effect official intervention in the foreign exchange market to defend the value of the rand if there were ever to be an unsolicited speculative attack on the local currency.

“The level of foreign exchange reserves is important as a signaling tool to investors holding rand-denominated assets and that the custodian to the rand has sufficient instruments to defend the currency if the need arises.

“Gold is seen as hedge against inflation and adverse geo-political and economic events. “Net gold assets therefore protect the net asset value on the Reserve Bank’s balance sheet, as a result in this way the Reserve Bank will be able to intervene even in times of extreme global macrofinancial volatility,” he said.

But recently, Efficient Group chief economist Dawie Roodt argued that although South Africa has more or less enough reserves to pay for imports and protect the rand, but such reserves have not been used accordingly, especially to rescue the rand.