the case, such as the fact that the rand is a high - beta currency and is used as a proxy hedge for other em currencies. but attention also needs to be drawn to the starting point of the depreciation, as the rand had appreciated significantly towards the end of last year, and in early 2018, on the back of improved perceptions this view is informed by our study of em fx return statistics such as skewness of returns, differences between average and median returns, as well as differences in average returns of different quartile ranges. page 4 of 8 around domestic political risks. this resulted in portfolio inflows which contributed to the relative strength of the rand. according to data from the johannesburg stock exchange, non - residents purchased r48. 4 billion worth of bonds and equities during the first quarter of this year. however, in the second quarter, non - residents sold r85 billion worth of bonds and equites as expectations for global financial conditions tightening increased and risky assets came under pressure. the vast majority of this selling was in government bonds. the selling of south african financial assets continued in the third quarter, with r62. 5 billion worth of bonds and equities being sold. but more recently we have seen some slowdown of outflows and some resumption of inflows. this contributed to the rand recovering some of its losses, to the current level of r13. 9 against the us currency, although this still represents an 11. 6 % depreciation since the beginning of the year. the rand also weakened on a trade - weighted basis, and its real effective exchange rate declined below its long - term average. according to the sarb ’ s equilibrium exchange rate model, the real effective exchange rate of the rand moved from being overvalued at the beginning of the year to currently finding itself at an undervalued level. the forecast presented to the mpc at its meeting last week showed the implied starting point for the rand against the us dollar at r14. 50. according to the quarterly projection model, this undervaluation is expected to persist through 2019, as the local currency is expected to only gradually revert to its equilibrium level. 2018 has also seen a significant pick up in volatility with the 3 - month option implied volatility for the rand rising from 11. 8 per cent in april to peak at a level of 23. 6 per cent on 5 september before receding

keynote address by daniel mminele, deputy governor of the south african reserve bank, at the bloomberg fx ’ 18 johannesburg : south africa economy in focus event johannesburg 28 november 2018 recent developments in emerging economies ’ foreign exchange markets good afternoon, ladies and gentlemen. this year has certainly been another challenging one for the foreign exchange ( fx ) market. the emerging market ( em ) currency complex has just emerged from one of the steepest corrections since the taper tantrum of 2013. some of the worst - hit currencies have recovered from their year - to - date lows, including the argentine peso, the brazilian real, the turkish lira, and the south african rand. but the broader em basket, as measured by the jp morgan emerging market currency index, remains close to its lowest levels on record. as we enter the final weeks of this year, it seems apt to reflect, and to share some perspectives on recent developments in em fx markets, including developments in the local foreign exchange market. i will also touch briefly on some of the initiatives that have been undertaken to improve governance in the domestic fx market. but before i share my pearls of wisdom with you, let me remind you what one winston churchhill said in the house of commons, on 29 september 1949 : “ there is no sphere of human thought in which it is easier to show superficial cleverness and the appearance of superior wisdom than in discussing questions of currency and exchange. ” page 1 of 8 or the famous words of former fed chairman, alan greenspan, who in 2004 observed that “ nonetheless, despite extensive efforts on the part of analysts, to my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin. i am aware that of the thousands who try, some are quite successful. so are winners of coin - tossing contests ”. recent developments in em fx so far this year, the jp morgan em currency index has declined by more than 10 %, and losses among the major em currencies have ranged between a tenth of a per cent ( hong kong dollar ) and 49 % ( argentine peso ). this is the first year since 2015 that em currencies as a group have depreciated by this much on a cumulative basis. a number of factors contributed to the recent sell - off. the most important one was probably the tightening in global financial conditions. much has already been said about global policy tightening so i will not add to the debate here. but to para