SA to diversify reserves by buying won, Aussie and Kiwi dollars

South Africa’s Reserve Bank plans to diversify its foreign currency reserves by buying South Korean won and the Australian and New Zealand dollars, Deputy Governor Daniel Mminele said.

This follows an agreement earlier this year to invest about $1.5-billion, or 3% of reserves, in Chinese bonds, Mminele said at a conference in Johannesburg on Tuesday, according to a copy of the speech on the Reserve Bank’s website.

The bank, which had gross reserves of $50-billion at the end of September, is seeking to broaden its foreign-currency holdings and invest in other assets amid speculation the US Federal Reserve will start reducing bond purchases, Mminele said.

Teh Reserve Bank has already started buying covered bonds and mortgage-backed securities and recently began trading in bond futures to hedge against rising yields, he said.

"The South African Reserve Bank is acutely aware of the risks facing the global environment emanating from asset tapering, and with this in mind made a strategic decision to diversify its currency exposure to help insulate reserves from this potential rise in US Treasury yields," Mminele said.

The bank has been building foreign-currency reserves to help bolster the rand, which has dropped 17% against the dollar this year. The local currency fell 0.7% to 10.20 per dollar as of 12.30pm in Johannesburg on Tuesday. – Bloomberg

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