Reserve Bank worried about money flowing out of South Africa

The South African Reserve Bank (SARB) said capital outflows and declining market depth and liquidity are additional risks to the country’s financial stability.

This was revealed in the SARB’s latest Financial Stability Review (FSR) published on Monday, 29 May 2023.

The SARB publishes the FSR twice a year to communicate its views on the potential risks to financial system stability and the policy actions to address them.

The SARB’s latest FSR listed the usual risks, including tight global and local financial conditions, high interest rates, the FATF grey listing, load-shedding, and poor economic growth.

Since its latest FSR release in November 2022, two new risks have been added.

•            Capital outflows and declining market depth and liquidity.

•            Secondary sanctions amid heightened geopolitical polarisation.

It said a sustained decrease in the value of South African government bonds (SAGBs) held by non-residents causes greater concentration within the domestic financial system.

“The orderly functioning of the government bond market can be disrupted, potentially requiring repeated episodes of support by authorities,” the report states.

It also warned of a less diversified capital markets ecosystem, which reduces the financial system’s ability to absorb systemic shocks.

There is also a risk of a decrease in the exchange value of the rand if foreign investor appetite wanes and commodity prices decline.

The SARB added that remaining on the FATF greylist for an extended period would contribute to capital outflows and a higher country risk premium.