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Sarb warns on further downgrades

Pretoria - South Africa's stuttering economy and frequent strikes may lead to further sovereign rating downgrades and the exclusion of the country's bond market from Citibank's global bond index, the South African Reserve Bank (Sarb) said on Tuesday.

Foreign investors hold about 37% of government debt, the central bank said in its Financial Stability Review.

"Further downgrades could trigger a negative reaction from investors, especially since it might bring South Africa's credit rating closer to the benchmark that Citibank uses to exclude countries from its World Government Bond Index (WGBI)," the Reserve Bank said.

South Africa's bond market has received R60bn in inflows since joining the influential index in October last year. Inclusion in the index - tracked by an estimated $2trn worth of funds - is viewed as a seal of approval for Africa's biggest economy.

But a spate of strikes in the key mining and auto sectors has hit economic growth prospects, while a pull back in unsecured lending has hurt consumer spending.

The Reserve Bank also said closer monitoring of non-banking credit providers was necessary because of the liquidity and credit risks they posed to the wider financial system.
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