By Karin Strohecker and David Lawder
WASHINGTON (Reuters) -Emerging economies will have to grapple with tighter global financing conditions for longer while the future of risk-free assets is very much in focus, the head of South Africa’s central bank told Reuters.
Speaking on the sidelines of the IMF and World Bank spring meetings in Washington, South African Reserve Bank Governor Lesetja Kganyago said it was too early to know the impact on global disinflation of the trade tensions triggered by U.S. President Donald Trump’s imports tariffs.
“We know … that tariffs are negative for economic growth – it’s a no-win game,” Kganyago said in an interview late on Wednesday.
“And for many of us who are from small, open economies, the impact on sentiment is such that global financing conditions remain tight or tighter for longer than what we had expected them to be.”
As part of the broad tariffs he announced in early April, Trump slapped a 31% levy on imports from South Africa. Many of the higher U.S. levies on dozens of countries have been put on hold.
The back and forth on tariffs also rocked U.S. Treasury markets, which form the bedrock of global fixed income markets and a baseline for global borrowing costs.
“If financial conditions tighten … then countries that are having external financing needs would have to meet those financing needs at higher cost, and that has got implications for capital flows, which would then have implications for exchange rates,” Kganyago said.
The future of risk-free assets, which traditionally include U.S. government bonds and the dollar, was one of the main issues at the meetings in Washington this week, he said.
“One of the puzzles of the past few weeks had been risk-free assets being sold and the dollar depreciating,” he said.
It was asked whether this was a structural break or simply people having too much cash riding on risk-free assets, he said.
“It’s too early to tell and we can’t quite say what the impact would be, but previous correlations that we knew had been that when you have got this amount of uncertainty, people run to the safe haven of the safe assets, and the safe assets behaved differently.”
(Reporting by Karin Strohecker and David Lawder; Editing by Paul Simao)
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