South Africa Net Reserves Up on Strong Rand, Lower Debt

Posted 08 January 2007 @ 10:52 am EET     Print     Reprint     E-Mail     Comments

JOHANNESBURG (Reuters) - South Africa's net gold and foreign exchange reserves rose in December to $22.988 billion, data showed on Monday, reflecting higher foreign currency holdings and a reduction in loans.

The figure was up on the $22.171 billion held at the end of November and was boosted by a stronger rand and lower borrowings, the central bank said in a statement posted on its Web site.

Gross reserves increased to $25.613 billion from $25.039 billion, but in rand terms they fell to 178.317 billion rand due to the currency firming against the dollar during the month.

Analysts said the increase in reserves showed the central bank had, as expected, taken advantage of a stronger currency to improve the country's ability to handle external shocks. "It's a nice, healthy, strong build through December but not that surprising given the strong rand we saw during November and December," ETM analyst George Glynos said.

The rand firmed by about 4 percent against the dollar during December, adding to gains in November. The currency has given back some of those gains in January, trading about 3 percent weaker so far this year. The rand lost some ground after the data was released, weakening to 7.23 to the dollar at 0700 GMT but was still about 0.6 percent firmer on the day.

The data showed foreign exchange reserves increased by $596 million to $23.083 billion, while gold reserves were marginally lower at $2.53 billion due to a slight drop in the bullion price over December.

Foreign loans decreased, boosting the net position. "The improvement in net reserves includes a reduction in foreign loans resulting from a prepayment of $250 million of a 3-year $1 billion syndicated loan entered into in 2004," the central bank said.

South Africa brought a long-standing negative position in reserves into balance early in 2004 with the elimination of its loss-making forward foreign exchange book, historically the Achilles' heel of the currency. Since then it has gradually increased net reserves also known as the international liquidity position although the total still lags comparable emerging markets.

"I think a positive step (higher net reserves) overall in terms of reducing South Africa's risk profile but I still think we have quite a way to go before foreigners look at South Africa's reserves position as healthy," Glynos said.