South Africa to Diversify Reserves by Buying Won, Aussie

South Africa’s central 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 percent of reserves, in Chinese bonds, Mminele said at a conference in Johannesburg today, 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 U.S. Federal Reserve will start reducing bond purchases, Mminele said. South Africa’s central 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 U.S. Treasury yields,” Mminele said.

The bank has been building foreign-currency reserves to help bolster the rand, which has dropped 17 percent against the dollar this year. The local currency fell 0.7 percent to 10.2016 per dollar as of 12:30 p.m. in Johannesburg.

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