Letters To The Editor: South African central bank responsible for fall in rand

Werner, R.A. (2002) Letters To The Editor: South African central bank responsible for fall in rand. Financial Times, 9 April, P.20.

Record type: Article

Abstract

From Mr Richard A. Werner.
Sir, You report ("Deutsche Bank rejects claims its deals caused sharp fall in rand", April 5) that the South African rand's 37 per cent decline in 2001 "left economists baffled and raised fears that its cause was market manipulation by financial institutions", for which, among others, Deutsche Bank found itself accused.
I would like to correct the first and clarify the second part of your statement.
The Profit Research Center, an independent research and fund advisory firm based in Tokyo (in no way related to Deutsche Bank), placed a "sell" recommendation on the rand in February 2001, which we have maintained so far. Our international currency models are based on our measure of central bank liquidity injections, and South Africa is no exception. We noticed an extraordinary surge in the liquidity injected by the South African Reserve Bank, beginning in late 2000, which has continued until this day. This autonomous policy by the Reserve Bank is responsible for the depreciation of the rand.
However, it has also had its benefits: thanks to the booming credit creation we placed a "buy" recommendation on South African equities in January 2001. Equities are up almost 40 per cent in the past year. Therefore, the decline of the rand is neither baffling nor the result of manipulation by financial institutions. If one were to look for a manipulator, the only candidate would be the central bank.
Richard A. Werner, Chief Strategist, Profit Research Center, Tokyo 150-0001, Japan

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