Real Estate Investor Magazine South Africa November 2014 | Page 57

BY JAMES PAYNTER

INSIGHTS

Taming
The Rand

Is Governor Kganyago up to it?

L

esetja Kganyago’s appointment as Reserve
Bank Governor was well received by the
markets. He was quick to say the primary
objective of the SA Reserve Bank (SARB) was to
“protect the value of the Rand in the interest of
balanced and sustainable growth.” Does this mean
he can tame the Rand?
A misnomer
While ‘protecting the value of the Rand’ has been
the mandate of the bank for decades, its a misnomer,
based on a false belief central banks can control the
market, when history has shown the opposite.
Ask Chris Stals; who wasted $21 billion trying to
protect the Rand’s value during the South East
Asian crisis in the late 90s.
Ask Tito Mboweni; after all attempts to protect the
Rand’s collapse had failed, announced in 2001 that
the bank will “let the market determine its value.”
The fact is, the market is in control, not any central
bank.
Interest rate tool
It is widely-believed interest rates are a lever in the
bank’s hands, but the facts tell another story.
This chart shows the three-month Treasury Bill
yield against the repo rate since 1999. When T-bill
yields rise, SARB is forced to raise rates. When
they peak and start falling, SARB has to drop rates,
following the market all the way down. When
SARB raised interest rates last year, after holding
them at record levels for so long, it was in response
to the market bidding higher for Treasury yields.
www.reimag.co.za

The real master
The market is in control, but what is the market? It
is a reflection of the mass psychology in that market.
This is what dictates it, and there is nothing any
government or central bank can do, except to react.
And so it is with the Rand. The market will
dictate it’s di ɕ