Reserve Bank warns junk status is a 'big issue'

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JOHANNESBURG, 06 September 2016 - Despite widespread panic about the repercussions of the country's imminent downgrade to junk status, some banking bosses say it's not a death sentence.

JOHANNESBURG – Deputy Reserve Bank governor Francois Groepe has condemned those who say the recent downgrades are no big issue.

His boss, Governor Lesetja Kganyago's already gone on record saying the recent political upheavals have negatively affected the economy. 

Groepe says those who say South Africa's junk status won’t affect the poor, are being dishonest.

The investment downgrades were sparked by President Jacob Zuma's recent Cabinet reshuffle which saw the removal of Pravin Gordhan as finance minister and Mcebisi Jonas as his deputy.

Both Standard & Poor's and Fitch have cited political uncertainty as a reason for their decision. 

READ: 'Corrupt S&P should not be allowed in SA' – ANCWL

Now there are concerns by some economists and policy analysts that the lack of confidence in the local economy could lead to a recession, increased prices of basic goods, and job losses. 

"(Claiming the downgrade is no big issue) is deprived of any (empirical) evidence in the economic literature. As a matter of fact, there's work that has been done surveying 70 countries that when you have a downgrade to junk status that interest rates increase by generally 80 basis points.

"So what we can say with a fairly high degree of confidence is that the (empirical) work suggests that interest rates rise when your country becomes junk. And that is just the reality," Groepe said.