South African assets are affordable in part due to the country’s free-floating exchange rate that allows the currency to adjust to global conditions – making it a viable investment, says the governor of the South African Reserve Bank (SARB) Lesetja Kganyago.
Speaking at the JSE/NYSE Market Close Event in New York on Monday (10 October), Kganyago emphasised the Reserve Banks’ commitment to tightening monetary policy in a way that best suits domestic consumers and foreign investors.
South African delegates and representatives of the New York Stock Exchange (NYSE) have signed a new memorandum of understanding between the Johannesburg Stock Exchange (JSE) and the NYSE with the goal of fostering closer ties between the two markets.
The SARB added that the new memorandum aims to also increase economic partnerships and trade opportunities between the two countries – exploring new areas of cooperation and collaboration in strengthening their respective value propositions.
According to the Department of International Relations and Cooperation, the United States (US) is one of South Africa’s top five trading partners with shared economic interests. South Africa is the US’s largest African trading partner.
Kganyago reassured the exchange that South Africa has been tightening its monetary policy in light of global conditions remaining volatile and uncertain and that the country is stable enough to provide growth in the coming years.
He said that foreign investors would re-enter South African markets due to better real growth differentials and higher yields, while residents will rebuild diversified portfolios that include foreign assets.
Kganyago pointed to two distinct factors of the South African economy:
- Attractive asset prices
- A free-floating exchange rate
“In South Africa, we have a free-floating exchange rate, and we are very tolerant of exchange rate fluctuations,” said the governor. “This is because we have low levels of foreign exchange debt, and we have inflation expectations that do not react strongly to exchange rate movements,” he added.
As a result, the currency is free to adjust to global conditions and when it depreciates, similar to how it has recently; it makes South African assets attractive in foreign currency terms.
“The news is in the price, and it is an attractive price. It is not an artificially low price, held down by policies that we cannot sustain or that are inconsistent with our economic condition.”
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