Capital account in the black despite rand's ride
SPECULATIVE attacks on the rand through 1996 almost resulted in a net outflow of capital from South Africa over the year. But a net inflow in the fourth quarter - as local banks borrowed offshore - resulted in a small surplus on the capital account of the balance of payments.
The Reserve Bank's March quarterly bulletin shows a drastic contraction in the net inflow of capital to R3.9-billion in 1996 from R19.2-billion in 1995. The Bank points out that "the fact that a net inflow of capital occurred is quite remarkable in view of the frequent speculative attacks on the rand during 1996".
These attacks resulted in net outflows in the first and third quarters and net inflows in the second and fourth. The net inflow of long-term capital dropped to R4.9-billion from R15.1-billion as an inflow in the first half was followed by outflows in both the third and fourth quarters.
The net outflow of long-term capital by the private sector was R800-million compared with an inflow of R6.4-billion in 1995. This reflected a relatively large outflow of long-term capital in the last quarter. The Bank said this was mainly because of foreign debt obligations of R3.2-billion which became due for repayment, net sales of R500-million of JSE shares by non-residents and a large rise in the acquisition of foreign assets by local companies.
There was a net outflow of R1-billion of short-term capital compared with a net inflow of R4.1-billion in 1995.
A liquidity squeeze on the SA money market prompted banks to make use of foreign short-term credit facilities. This offshore borrowing activity resulted in a large inflow (R4.5-billion) in the last quarter compared with accumulated outflows of R5.5-billion in the previous three.
The Bank said the inflow in the fourth quarter was larger than the deficit on the current account of the balance of payments, so gold and foreign reserves rose quite sharply. This rise caused more positive sentiment in the markets and greater stability in the market for foreign exchange.