S.Africa finmin says rand still overvalued

South Africa has taken measures to counter capital inflows but the rand is still overvalued, the country's finance minister said on Friday.

South Africa attracted higher capital inflows in 2010 along with other emerging markets with more attractive rates than developed nations, a factor that helped push the rand up more than 25 percent over the past two years.

Finance Minister Pravin Gordhan said South Africa had combined equity and bond flows of almost 100 billion rand in 2010, a third of which was in equities.

He added that the central bank had built up foreign exchange reserves and used currency swaps, while the government also loosened controls to allow capital outflows.

But the rand remains reasonably overvalued and the impact is severe in the manufacturing sector, Gordhan said on the sidelines of the annual World Economic Forum in Davos.

Flows into fixed income markets were much shorter term in nature, he added. In the bond markets, money tend to stay for a month. In equities, money stays longer, for about a year.

The Reserve Bank quickened the pace of its reserves accumulation last year, pushing gross reserves to $43.834 billion at the end of December.

It also started using longer term currency swaps in August to shore up its holdings. Its forward position stood at $4.2 billion at the end of December.

For Friday, the rand fell 1.1 percent as the central bank sold the currency.

Emerging stocks extended losses and debt insurance costs across the Middle East and North Africa surged as jitters over political unrest in Egypt spilled across the broader region.

Asked if the political turmoil in Egypt would damage general investor interest in Africa, Gordhan said the African Union will play a key role in dealing with instability.

Africa as a whole has had political stability for a long time. In areas where there is instability, the African Union will assertively deal with the issue, Gordhan told Reuters.

They are determined to tackle problems.