The weaker rand, and capital outflows from emerging markets, are making it more difficult for the Reserve Bank to boost foreign reserves, which will increase South Africa’s vulnerability to currency weakness and volatility.

Figures released on Wednesday by the Bank show dollar-denominated holdings of gold and foreign assets rose by $239m to $49.587bn in December from $49.348bn in November. Foreign exchange reserves were up $429m to $42.008bn from $41.579bn ‚ while gold reserves declined $199m to $4.825bn from $5.024bn.

The international liquidity position, or net reserves, rose by $49m to $45.479bn from $45.430bn.

Increasing reserves could act as a buffer against a weaker rand, as it will raise the import cover ratio at a time when the deficit on the current account reaches record levels.

It is also an expensive exercise as rand have to be sold for dollars or euros. Nedbank economist Johannes Khosa said general economic conditions were still challenging, and the Bank’s ability to accumulate reserves would also depend on market conditions.

“The rand remains vulnerable, and capital inflows into emerging markets are likely to be affected by the US Federal Reserve’s decision to reduce its monetary stimulus programme from this month.” The Bank would be constrained in its ability to accumulate reserves aggressively in the short term, he said.

The rand was at R10.70/$ in late afternoon trading on Wednesday after a close of R10.6355/$, as the dollar strengthened to $1.3566 from $1.3616 to the euro in reaction to positive private sector employment data in the US.

Reserve Bank governor Gill Marcus in October indicated reserves were low and could be increased. A deputy governor, Daniel Mminele, said in November the Bank had a target for optimal reserve levels, but it would not be disclosed.

Ms Marcus’s view echoes that of Tito Mboweni, her predecessor, who in 2000 made it a major aim to increase reserves. At that time they were in a negative, overdraft position due to heavy dollar buying under Chris Stals.

This was done to protect the rand during the 1998 emerging market contagion.

Reserve accumulation finally turned positive in 2003 in Mr Mboweni’s term. They grew steadily to $10bn in 2005, $20bn in 2006 and $40bn in 2011.

Further expected weakness in the rand will make the Bank’s task even more difficult. The fall in the dollar gold price is a hurdle as the value of the Bank’s gold assets are revalued every month.

Investec economist Kamilla Kaplan said the dollar weakened against the pound and euro last month. The Bank also holds reserves in pounds, euros and other currencies.

The revaluation accounted for $0.16bn of the total $0.43bn change in the foreign exchange position. The rest had been attributed to foreign-exchange transactions conducted on behalf of clients, and to moderate reserve building.

The import cover ratio is 6.4 months of imports. A ratio of eight to 10 months is more appropriate for an open economy.