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Forward book shows Bank's hand
THE ECONOMY
DESPITE protestations by the Reserve Bank that it had been showing less of itself in the foreign exchange market in June, latest reserves data shows it remained a major factor in the forward foreign exchange market. The Bank said on Thursday its net oversold foreign exchange open position was $22.5-billion at the end of June compared with $17.9-billion in May - a rise of $4.6-billion or R27.6-billion. It brought to about $10-billion the increase in the forward book's open position in just two months and leaves the open position at its highest level since the $23.8-billion recorded in July 1995. The Bank did largely stay away from the spot market, with spot gold and foreign exchange reserves up R500-million in June to R33.40-billion. But that figure is also misleading as the rand fell substantially in the month to end-June, and in dollar terms spot reserves were down $600-million in June. Some of that $600-million fall is due to a $100-million quarterly International Monetary Fund loan repayment. Use of foreign credit lines slipped to R17-billion at the end of June from R17.1-billion at the end of May. In dollar terms, use of foreign credit lines fell $400-million. If the current emerging market turmoil eases, the Bank will be able to reduce the open position in steps, but, until then, the figure is likely to bear the brunt of the Reserve Bank's attempts to use the foreign exchange market to stabilise the rand. The fact that the Bank is using the forward book at all is testimony to how severe the crisis is. It previously committed itself to reducing the forward book and not using it as a major policy tool. Reaction to the figures was negative, and underscores why speculators are finding SA such an easy target. They say the Bank has almost no firepower to battle on traditional lines by using spot reserves. Instead, it must use interest rates as its only effective policy tool. But due to the fragile state of SA's economy, the Bank feels hamstrung in the extent to which it can use that tool.
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