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South Africa’s
government has no target for foreign exchange reserves and will help
the Reserve Bank accumulate reserves as and when it can afford to,
finance minister, Pravin Gordhan, said on Thursday.

Mr. Gordhan also
told a parliamentary committee the government had extended guarantees
to state power utility, Eskom, from174 billion rand to 350 billion
rand, to enable it to continue with its power generation programme
through 2017.

The government is
under pressure from exporters and unions to tame the rand, which has
rallied more than 26 percent against the dollar since the start of
2009, and Mr. Gordhan said on Wednesday the government would allocate
more funds to let the central bank build up reserves.

The rand’s
strength, largely fuelled by foreign investment into South Africa’s
high-yielding assets, is hurting mining and manufacturing exports in
particular.

“There is no target
as far as reserves are concerned. As and when we can afford to fund the
Reserve Bank’s purchase of dollars and accumulation of reserves, we
will certainly do that,” Mr. Gordhan told a parliamentary committee on
Thursday.

The Treasury says
it has spent 43 billion rand so far this year to support the central
bank’s reserve-building efforts and will continue to do so, pushing
reserves to over $44 billion by the end of September.

The central bank
started using currency swaps in August to shore up its reserves.
Through an overbought forward book, it purchases dollars in the spot
market and enters into longer-term contracts to settle the purchases.

The central bank’s forward book stood at $1.1 billion in September.

Rand overvalued

Treasury director,
General Lesetja Kganyago, reiterated on Thursday the rand was
overvalued by up to 20 percent, but said its strength had offered some
benefits for a country investing in infrastructure.

“Depending on what
you use, the overvaluation would vary between 5 and 20 percent and that
is not very helpful in making a decision. The range is so wide, so you
try to shoot for something in the middle,” Mr. Kganyago told the
parliamentary committee.

He told legislators it was necessary to allow foreign exchange to go out of South Africa to mitigate the rand’s gains.

The central bank
says it does not target a level for the local unit, which was last
trading at 7.0023 against the dollar on Thursday, up to 1.03 percent
from Wednesday’s close of 7.0750.

The Treasury
offered more guarantees for Eskom, which has been struggling to find
all the money it needs to pay for two new 4,800 MW coal-fired power
plants.

The electricity
firm has said it will tap the U.S. bond market in early 2011 for cash
to pay for new power stations, including the Medupi and Kusile projects
and other infrastructure desperately needed to avoid a power crunch.

“Backed by these
guarantees … when they complete Medupi and Kusile, the energy that is
going to be generated by these power stations should actually enable
Eskom to service its debt,” Lungisa Fuzile, head of asset and liability
management at the Treasury told the same hearing.

Officials have warned of rolling blackouts from 2011 to 2016 unless extraordinary measures are taken to generate more power.