SARB reserves dip to $45.1bn

Johannesburg – The South African Reserve Bank’s gross reserves position dropped to $45.1 billion in January, from $45.8 billion in the previous month.

In a note, Investec explains this decrease mostly stemmed from a drawdown in foreign exchange reserves of $900 million to $38.2 billion.

In January, the value of gold reserves lifted to $4.5 billion from a previous $4.3 billion, reflecting the rise in the gold price of nearly 5 percent month-on-month, says Investec.

However, the rand also depreciated during January, declining 3.1 percent from December after dropping in value by 8 percent in December.

Investec notes episodes of significant currency depreciation diminish reserve building opportunities for the reserve bank.

“Rand depreciation has been a part of a broader emerging market trend exemplified by significant capital outflows. Weak economic growth prospects; commodity price declines and concerns about China’s economic developments have fuelled risk aversion.”

In addition, notes Investec, increased US short-term interest rates have contributed to tighter financing conditions across emerging markets.

Investec adds, based on information from the Institute of International Finance (IIF), emerging markets suffered outflows in the order of $531 billion in 2015 and another $348 billion could very well leave through the course of 2016.

The bank also says rand weakness has also been a function of idiosyncratic factors. As noted by the World Bank, these are linked to “instability triggered by the appointment of new ministers in key portfolios of mining and, in particular, finance,” it adds.

Yet, risk sentiment towards emerging markets improved at the start of February, with the IIF recording a marked increase in portfolio inflows to emerging markets