A change in the way South Africa\u2019s central bank implements monetary policy may lead to greater volatility in the rand.<\/p>\n
The transition will start Wednesday night and will see the central bank shifting to a surplus system from its current deficit set-up, meaning commercial banks will be allowed to hold and earn interest on excess reserves.<\/p>\n
The South African Reserve Bank will also introduce measures to prevent banks from hoarding liquidity, and thus help maintain an interbank money market, similar to the \u201ctiered floor\u201d framework used by the Reserve Bank of New Zealand and the Norges Bank.<\/p>\n
While the change won\u2019t affect the central bank\u2019s inflation target or interest-rate decisions, it may make it easier to speculate in the rand, resulting in wider price swings during times of stress. Elevated ZAR-USD basis-swap rates since the pandemic have made it expensive to short the South African currency.<\/p>\n
\u201cThe currency basis will contract, making it cheaper to short the rand,\u201d said Michelle Wohlberg, a Johannesburg-based fixed-income analyst at Rand Merchant Bank. \u201cThis could result in volatility in risk-off bouts.\u201d<\/p>\n
The rand has been less volatile this year than a host of peers — including the lira, zloty and real — even as risk assets came under pressure amid rising global inflation and policy tightening, concerns of a slowdown in China, and Russia\u2019s war with Ukraine.<\/p>\n The currency\u2019s historic volatility versus the dollar has risen 63 basis points to 14.66%, the seventh highest of the 23 developing-currencies monitored by Bloomberg.<\/p>\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2022\/06\/Rand-1.jpg\")
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