May 5, 2017 / 7:00 AM / 2 years ago

South Africa can avert further downgrades: central bank governor

DURBAN, South Africa (Reuters) - South Africa is capable of quickly addressing concerns raised by credit ratings agencies to avoid further downgrades, central bank governor Lesetja Kganyago said on Thursday.

South Africa's Reserve Bank Governor Lesetja Kganyago speaks during a television interview at the World Economic Forum on Africa 2017 meeting in Durban, South Africa, May 4, 2017. REUTERS/Rogan Ward

Africa’s most industrialised economy was cut to “junk” last month by two major ratings agencies which cited political uncertainty after President Jacob Zuma sacked respected Pravin Gordhan from the finance minister’s portfolio.

“The issues raised by the ratings agencies are issues that we as South Africa can do something about, it’s not things that are beyond us country as a country,” Kganyago told Reuters on the sidelines of a World Economic Forum meeting on Africa.

“If we are able to deal with issues raised by the ratings agencies we could actually avert further ratings downgrades.”

Lower ratings typically make it more expensive to borrow, particularly when they fall below investment-grade, and risk deterring the foreign investors on whom South Africa relies to finance its big budget and balance of payments deficits.

The central bank said in a report on Tuesday that it was concerned about further downgrades to local currency debt and the impact on the stability of the domestic financial system.

S&P Global Ratings cut South Africa’s foreign debt and Fitch downgraded both its foreign and local currency debt to sub-investment grade in April.

Moody’s has also put South Africa’s rating, currently two notches above junk status, on review for a downgrade.

“What is useful is how quickly can South Africa deal with the concerns raised by the ratings agencies ... and when the agencies raise issues and you deal with the issues, they want to see if that will be sustained,” Kganyago said.

Finance Minister Malusi Gigaba told Reuters on Wednesday that ratings agencies were concerned about government plans to grow the economy, polices such as the procurement of nuclear power, and whether there was sufficient fiscal discipline to manage the budget.

Kganyago said the bank will focus on its mandate to lower inflation to within its target range of 3-6 percent to help the government achieve inclusive growth, which is meant to benefit the black majority.

“Our contribution to any growth plan is to protect the buying power of the currency, which means we must bring down inflation,” the governor said.

“If inflation is sustained within the target, that gives economic agents certainty that with inflation lower the cost of capital will come down.”

He said the rand currency remained a risk to the inflation outlook, however.

The rand fell to its weakest in three weeks on Thursday after a survey showed private sector activity contracted for the first time in nine months in April, with a hawkish statement from the U.S. central bank adding to the bearish sentiment.

Editing by James Macharia and Catherine Evans

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