May 2, 2017 / 4:08 PM / 3 months ago

South Africa's central bank worried about further downgrades

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PRETORIA, May 2 (Reuters) - South Africa's central bank is concerned about further downgrades to local currency debt and the impact on the stability of the domestic financial system, it said in a report on Tuesday.

Africa's most industrialised economy has this year suffered from credit ratings downgrades after President Jacob Zuma sacked respected Finance Minister Pravin Gordhan in late March.

"The possibility of further downgrades to South Africa's local currency rating and South Africa consequently being excluded from the remaining bond indices is disconcerting," the bank said in a financial stability review.

The regulator added that should ratings agencies downgrade South African local currency debt further it could have a significant impact on the cost of funding and investment flows.

"Market volatility could increase as a result, with sharp losses likely to be recorded in the currency, bond and equity markets, thereby negatively affecting the stability of the domestic financial system," it said.

S&P Global Ratings cut South African foreign debt to sub-investment grade in April, while Fitch downgraded both the foreign and local currency debt to "junk" status.

Moody's, two notches above junk status, has put South Africa on review for a downgrade.

Local currency borrowing makes up about 90 percent of the South Africa's total 2.2 trillion rand ($165 billion) of debt.

$1 = 13.2956 rand Reporting by Olivia Kumwenda-Mtambo; Editing by Joe Brock

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