South Africa mulls weaker currency

22:27, July 22, 2010      

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The South African government is discussing the possibility of weakening the South African currency, the rand, but no decision has bee taken, South Africa President Jacob Zuma said on Thursday.

Addressing a press conference in the South African capital Pretoria, Zuma said even economists don't have one view on the matter of currency adjustment.

The South African Press Association (SAPA) quoted Zuma as sayting in his discussions with business people that some had argued for the weaker currency and others for a stronger.

"Economists don't easily agree on matters...but it is a matter that is occupying the minds of economists as well as the government."

The South African president said discussions on the currency would form "part of some very special session", where many economic issues would be discussed.

"We have not taken any decision, but those are matters we are looking at."

In its first assessment of the South African economy, the Organization for Economic Co-operation and Development (OECD) earlier this week recommended the lifting of South Africa's remaining foreign exchange controls.

It also said South African authorities should intervene more actively against strength in the rand.

Citing the OECD, SAPA said the strong rand has hit South African exports.

The OECD recommended that the South African government provide policy signals on the exchange rate and the direction of interest rates.

Gains in the rand were hurting South Africa's ability to boost exports, while the volatility of the currency was provoking higher inflation, the OECD said.

The organization said exchange rate volatility was a significant driver of inflation in South Africa, with rand depreciation having a bigger effect on prices than rand appreciation.

Any steps to limit volatility should be done within the South African policy of keeping inflation inside a 3 percent to 6 percent target range, the OECD said.

Source: Xinhua


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