South Africa's Reserve Bank will continue backing steps proposed by the Treasury to mitigate the high volatility in the rand exchange rate, bank chief economist Monde Mnyande said on Friday.

Both the government and the Central Bank have expressed concern over foreign exchange volatility and the strength of the rand, but have ruled out fixing the currency to make the rate more stable and competitive.

Mnyande, who is also Governor Gill Marcus' advisor, said in a speech at a business meeting that the central bank would intervene in the foreign exchange market when necessary.

"The Bank will continue to support the measured steps proposed by the National Treasury, in an effort to mitigate the high volatility in the exchange rate," Mnyande said, adding however:

"The extent of intervention, however, must be limited given the cost implications of this exercise."

The rand was last trading at 7,23 against the dollar, not very far from a 20-month high of 7,1950 it touched earlier this week.

The Reserve Bank has said in the past that it would continue to build its foreign currency reserves when appropriate but that it would not use this to influence the rand's level.

"The level of reserves the Bank has accumulated thus far ... is not at all high relative to daily trade volumes in the rand foreign exchange market, which often exceeds $10-billion on a given day," Mnyande said.

Earlier on Friday, Reserve Bank data showed South Africa's net gold and foreign exchange reserves stood at $38,283-billion at the end of March, little changed from $38,281-billion in February, an indication the bank had not been very active in the market.

Mnyande also defended the central bank's inflation targeting policy, slated by labour unions as resulting in prohibitive interest rates, but reiterated the bank would pursue the policy in a flexible manner taking into account overall economic performance.

"Inflation targeting in South Africa has been very flexible and has resulted in increased coherence and transparency of the monetary policy strategy," he said.