By Garth Theunissen March 5 (Bloomberg) -- The rand headed for its biggest weekly rally in almost four months after a report showed the central bank hasn’t been buying foreign reserves to weaken the currency, easing concern of intervention to stem rand gains. The currency strengthened as much as 0.5 percent to 7.4429 per dollar, the strongest level since Feb. 3. The rand traded 0.1 percent stronger at 7.4677 by 11:33 a.m. in Johannesburg, from a close of 7.4763 yesterday, extending its weekly gain to 3.2 percent, the biggest since the five days ended Nov. 6. Gross gold and foreign currency reserves declined to $39.4 billion last month from $39.5 billion in January, the Pretoria- based South African Reserve Bank said on its Web site today. Net reserves dropped to $38.3 billion from $38.6 billion. “Monetary authorities do not have deep-enough pockets to intervene in the currency market,” Ayanda Olifant, a Johannesburg-based strategist at Standard Bank Group Ltd., wrote in a client note today. “This could be rand-positive, especially following yesterday’s comments” by the Finance Minister. Finance Minister Pravin Gordhan said yesterday that government will give the Reserve Bank “fiscal support” to boost reserves and curb swings in the rand, which rallied 28 percent against the dollar last year following a 27 percent slump the previous year. The dollar has gained 7.4 percent against the pound and 5.4 percent versus the euro this year, crimping the value of South Africa’s reserve held in those currencies. ‘Firepower’ “South Africa doesn’t have the reserve firepower to take on the market and try and control the rand,” said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg. “The fact that the minister rejected trying to control the rand with a portfolio inflow tax yesterday was a real positive.” Analysts had speculated earlier this year that due to its comparatively small foreign reserves, South Africa may attempt to impose a tax on portfolio inflows to stem gains in the rand following its 28 percent rally last year. Imposing capital controls to help weaken the rand is “not the way to go at this time,” though the government is aware that the International Monetary Fund has recently reviewed its policy on this, Gordhan said in an interview with Bloomberg TV in London yesterday. South Africa’s foreign-currency reserves are dwarfed by other emerging-market countries including Turkey with $67 billion, Malaysia with $97 billion and South Korea with $271 billion. Government bonds fell, raising the yield on the benchmark 13.5 percent security due September 2015 by 1 basis point to 8.18 percent. The bond’s price dropped 5 cents to 123.24 rand. Stimulus Measures The rand also gained this week after the European Central Bank yesterday maintained some stimulus measures to boost economic growth and kept its key interest rate at a record low of 1 percent. The Bank of England also left its main interest rate at 0.5 percent at a separate meeting yesterday. “The fact that interest rates in developed markets are staying near rock bottom is good for the rand from a carry-trade perspective,” said Cruickshanks. “That’s helped buoy the rand from a yield advantage perspective.” South Africa’s benchmark 7 percent interest rate makes the rand an attractive purchase for so-called carry trades. In such transactions, investors borrow money in countries with low interest rates and invest the proceeds in markets with higher returns, taking the risk currency moves will erase their profit. The nation, Africa’s biggest economy, sold $2 billion of 10-year bonds in its largest ever international debt sale to finance its budget deficit. The country issued the 5.5 percent securities to yield 5.59 percent, about 197 basis points above similar-maturity U.S. Treasuries at the time of sale. “The bond was very well received by investors,” said Cruickshanks. “The interest rate advantage offered by South Africa more than makes up for any perceived risk.” --Editors: Ana Monteiro, Gavin Serkin. To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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