In South Africa Economy at risk from possible U.S. rate hike - Central Bank

The bank said South Africa’s high debt-to-GDP ratio, recorded at 47.5 percent in second quarter of 2015, was cause for concern.

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South African Finance Minister Nhlanhla Nene delivers his 2015 Budget Speech at Parliament in Cape Town, February 25, 2015. REUTERS/Sumaya Hisham play South African Finance Minister Nhlanhla Nene delivers his 2015 Budget Speech at Parliament in Cape Town, February 25, 2015. REUTERS/Sumaya Hisham (Reuters)
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South Africa's economy remains at risk from an interest rate increase in the United States due to its still rising levels of external debt, the central bank said on Wednesday, and hours ahead of a policy decision by the Federal Reserve.

"South Africa’s high external financing requirements make the country vulnerable to the possibility of market volatility, which is associated with increases in U.S. policy rates,” the Reserve Bank said its September financial stability review.

South African Finance Minister, Nhlanhla Nene play

South African Finance Minister, Nhlanhla Nene

(google)

 

The bank said South Africa’s high debt-to-GDP ratio, recorded at 47.5 percent in second quarter of 2015, was cause for concern.

The bank also cited the risks to the currency posed by an impending rate hike by the Fed, which concludes it’s second to last policy meeting later this evening.

It warned that an increase from near zero rates by the U.S. central bank increased the likelihood of capital outflow.

“This could raise foreign-exchange related risks and increase the prospects of capital-flow reversal as investors become wary of exposures to volatile and vulnerable currencies,” the bank said.

The rand has fallen close to 15 percent against the dollar in 2015, tumbling to an all-time low in August as investors bailed on the unit with a U.S. rate hike looking almost certain.

South African Finance Minister Nhlanhla Nene takes part in a discussion on "Challengers of Job-Rich and Inclusive Growth: Growth and Reform Challenges" during the World Bank/IMF Annual Meeting in Washington October 8, 2014. REUTERS/Joshua Roberts play South African Finance Minister Nhlanhla Nene takes part in a discussion on "Challengers of Job-Rich and Inclusive Growth: Growth and Reform Challenges" during the World Bank/IMF Annual Meeting in Washington October 8, 2014. REUTERS/Joshua Roberts

 

The currency stumbled to a month low in the wake of last Wednesday’s budget, where Finance Minister Nhlanhla Nene again cut growth forecasts and said government would have to borrow more to plug a gap in revenue hit by high public wage increases and falling tax receipts.

The SARB's Financial Stress Index, which analyses developments domestically and globally on a continuous basis, rated as “high” the possibility of increased risk aversion triggered by changing perceptions in the timing of a U.S. rate hike.

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