Mboweni sits tight as other central bankers pour out cash
It's business as usual in SA on the sidelines of international market frenzy, says governor
September 19, 2008
By Ethel Hazelhurst
Johannesburg - As major central banks pumped money into the world's banking system yesterday, SA Reserve Bank governor Tito Mboweni said the bank "has not been required to take any special action" to stabilise the local interbank market.
Speaking at the bank's annual general meeting, he said the central bank "conducted its monetary and open market operations as normal".
He stressed that local banks had little direct exposure to the US mortgage-backed securities market and "continued to operate relatively smoothly".
The US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank all announced early yesterday that they would add liquidity to the market, according to Bloomberg.
The move halted a rout that started in the East, with Hong Kong's stock market plunging 7.4 percent by noon its time.
China's Shanghai Composite index lost 5.84 percent in early trade, Japan's Nikkei 3.79 percent and Australia's Standard & Poor's (S&P)/ASX200 index more than 3.5 percent.
Sentiment improved as the day progressed. Sapa-AP reported European stocks were higher after three days of losses. Wall Street rebounded at its opening after plunging 450 points on Wednesday. The JSE ended the day virtually flat.
Mboweni said South Africa's financial markets had not been spared the indirect effects of the global market turmoil. He said an indication of the increased risk attached to South African investment by the market was that the spread on the government's foreign exchange-denominated debt had widened to 312 basis points, "the widest ever and more than six times the spread of 50 basis points before the onset of the subprime crisis in May 2007".
The spread - the difference between benchmark US bonds and South African bonds of the same maturity - reflects perceptions of risk.
"In the month to September 16, non-residents sold a net R4.3 billion of South African equities, taking their sales in the year to that date to almost R18 billion. And they sold bonds amounting to a net R5 billion in the first two weeks," Mboweni said.
Despite the concerted global central bank action yesterday, rating agency S&P said more write-downs could be expected. It predicted loan losses would rise over the rest of the year. S&P credit analyst Scott Bugie described the situation as "the most difficult test yet for the battered global financial sector".
He pointed out that institutions faced the next wave of write-downs in a more difficult environment after "a huge amount of capital was raised over the past year to compensate for securities losses".
Bugie said the losses had spread beyond subprime, which represented only 10 percent to 15 percent of residential property borrowing in the US, and into other pressured areas of US housing finance.
He said three prominent players - Citigroup, Merrill Lynch and UBS - accounted for 40 percent of the more than $300 billion in write-downs of mortgage-backed securities and leveraged loans taken in the first half of this year.
The events in financial markets are contributing to a global slowdown.
Kevin Lings, an economist at Stanlib, said the US leading economic indicator, compiled by the Conference Board, fell another 0.5 percent month on month, more than expected. It was the third decline in the index in the past four months.
He said the indicator had a good track record of forecasting growth, and it was now clearly pointing to a very weak US performance in the second half of this year and the first half of next year. This would have adverse implications for global trade and therefore growth.
|
|
