UPDATE 3-S.Africa wants weak rand to aid growth despite G20

* “Active monetary policy interventions” to weaken rand

* Government insists plan not in conflict with G20 pledge

* Rand up nearly 30 percent vs dollar since start of 2009

* Analysts doubt authorities can easily control currency

* Finance minister to discuss growth plan on Wednesday

(Adds analysis of central bank’s position, graphic)

By Wendell Roelf and Stella Mapenzauswa

CAPE TOWN, Oct 26 (BestGrowthStock) – South Africa said on Tuesday
that it would weaken its rand currency to boost economic growth,
threatening a deal to refrain from competitive devaluations
reached by the Group of 20 major nations just three days ago.

The statement by South African presidency minister Collins
Chabane appeared to mark a policy shift by President Jacob
Zuma’s government, which previously had resisted calls by labour
unions to stimulate exports by weakening the rand (ZAR=D3: ).

Chabane, describing a new long-term growth plan for South
Africa, said it “entails a careful balancing of more active
monetary policy interventions to achieve growth…through a more
competitive exchange rate and a lower cost of capital.”

The plan sees unemployment falling to 15 percent from 25.3
percent currently over the next 10 years, implying the creation
of 5 million jobs during that period, the government said.

At a meeting of G20 finance ministers and central bankers in
South Korea last weekend, countries pledged to “refrain from
competitive devaluations” of their currencies. As a G20 member,
South Africa was party to the agreement. [ID:nTOE69M004]

A South African government spokesman insisted on Tuesday
that there was no contradiction between his country’s plan and
the G20 pledge, which was designed to reduce the risk of a
global trade war.

“We don’t see our growth path in conflict with G20 pledges,”
Themba Maseko told Reuters.

But analysts said South Africa’s plan could herald more
aggressive use of both a weaker currency and low interest rates
over coming years in an effort to tackle unemployment, which
Zuma’s government has identified as its biggest challenge. (for
a graphic, click http://r.reuters.com/kat32q )

Tuesday’s statement suggested “another change of the
monetary policy committee’s (MPC) mandate is on the way, plus
more forex policy change”, said Peter Attard Montalto, emerging
markets economist at Nomura International in London.

“I think this is a push for more activist policy on both
currency and MPC, involving new interventions and a shift of the
MPC mandate to explicit growth targeting over time.”

BUDGET REVIEW

Chabane did not elaborate on Tuesday on how South Africa
would conduct its “monetary policy interventions”, or say how
much it wanted to weaken its currency.

“The minister of finance will make further pronouncements on
the growth plan and possible currency foreign exchange plans on
Wednesday,” Maseko said.

Finance Minister Pravin Gordhan, who has himself spoken out
in the past against efforts by countries to weaken their
currencies, will deliver his medium-term budget review on
Wednesday. [ID:nLDE69I0YK]

The rand has appreciated about 27 percent against the U.S.
dollar since the start of 2009, buoyed by a flood of investor
funds from sluggish developed economies into emerging markets.

Many analysts said the country would have difficulty
fighting this trend. South Africa has relatively low foreign
exchange reserves and relies on foreign capital inflows to plug
its current account deficit, so it cannot easily copy countries
such as China and Brazil, which have used forex interventions
and taxes on capital flows to steer their currencies.

“South Africa is but a very small boat on a very rough sea
in the currency war arena. It is beyond its capacity to steer
the exchange rate of the rand directly,” said Jac Laubscher,
group economist at finance house Sanlam.

“Its only hope is to use its position in the G20 to promote
a multilateral response to the need for currency realignment…
Apart from that, any country that runs a perpetual current
account deficit can hardly afford to discourage capital
inflows.”

CENTRAL BANK

Also, it is not clear if South Africa’s central bank, which
is independent of the government, would go along with any plan
to weaken the rand. It might be reluctant to undertake any major
campaign of currency intervention; in September it said it was
accumulating foreign reserves but that the process was “costly”.

Similarly, it might resist the idea of cutting interest
rates to weaken the rand as its core mandate is to protect price
stability. Gordhan wrote to Reserve Bank Governor Gill Marcus in
February saying the MPC must also take into account economic
growth and job creation in rate decisions, but it is unclear if
the government would go as far as formally changing the mandate.

For those reasons, some analysts said the talk of currency
depreciation might largely aim at satisfying the labour unions,
rather than being a firm commitment to a much weaker rand.

The new plan “is much more focused on employment creation
and domestic growth generation than necessarily the currency”,
said Leon Myburgh, sub-Saharan Africa specialist at Citi.

“It’s a very broad intention and the rand is just a subset
of that. It’s being viewed as a tool to get to an end objective,
which is ultimately employment growth. I wouldn’t overstate the
role of the rand within the broader statement.”

The rand did not move significantly against the dollar in
response to Chabane’s statement on Tuesday, reflecting doubts
about authorities’ ability to weaken the currency any time soon.

“It’s more long-term, decades type of stuff — he has made
long-term comments. The budget announcements will probably have
much more direct effect on markets,” said Ion de Vleeschauwer,
chief dealer at Bidvest Bank.

(Additional reporting by Gugulakhe Lourie, Ed Cropley and Xola
Potelwa; Editing by Marius Bosch and Andrew Torchia)
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UPDATE 3-S.Africa wants weak rand to aid growth despite G20