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Gordhan warns on capital outflows

Johannesburg – Finance Minister Pravin Gordhan has warned there could be rapid outflows of capital from emerging markets, once a tapering in the US Federal Reserve's (Fed's) liquidity injection into financial markets occurs.

Bond buying or quantitative easing by the Fed has injected billions of dollars into US financial markets since the recession. Investors used the funds to buy assets in high-yielding emerging markets.

Fears of US quantitative easing tapering flared last week‚ leading to a sell-off in emerging market assets. The rand was among currencies that depreciated.

Gordhan told a Wits Business School function on Thursday night that the rapid inflows seen over the last few years could reverse.

“When sentiment changes then we're going to have rapid outflows... into safe havens”.

He said that while South Africa had not recovered as quickly as its peers because of its own “structural” weaknesses‚ the challenges the country faced were not unique.

Consumer spending led South Africa out of recession‚ although consumers have now come under pressure from rising administered costs‚ which they have mostly financed through unsecured loans.

Speaking at the same function‚ Banking Association of South Africa, MD Cas Coovadia said concerns remained around “inefficiencies” and some cases of reckless lending in the unsecured lending space.

Mr Coovadia said they would soon meet with the Treasury to discuss banking issues that would include unsecured lending.

He said that while unsecured lending had grown in recent years‚ “from a systemic point of view” it did not pose a threat to the stability of the financial system‚ a view supported by the Reserve Bank.

“There's abuse in the system ... there are inefficiencies in the system‚” Mr Coovadia said‚ but added that these were not significant enough to pose risks to the financial system.

SA's financial system is ranked highly compared to others around the world.

 
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