South Africa weighs ECB repo access to bolster liquidity

South Africa’s central bank is open to drawing on new repurchase agreement facilities from the European Central Bank should they become available, Governor Lesetja Kganyago said, signalling a pragmatic approach to shoring up foreign-currency liquidity as global financial conditions remain uneven.

Speaking on the margins of international central-bank meetings, Kganyago indicated that access to euro liquidity via ECB repo lines would add a useful layer to South Africa’s external buffers, complementing existing arrangements with other major monetary authorities. The comments place South Africa among a group of emerging economies assessing whether broader access to advanced-economy backstops can reduce funding stress during bouts of market volatility.

Repo lines allow a central bank to obtain short-term foreign currency by posting high-quality collateral, typically government securities, rather than drawing on reserves outright. Over the past several years, the European Central Bank has expanded its toolkit beyond standing swap lines with a small set of peers, offering temporary repo facilities to non-euro-area central banks that meet eligibility criteria. These facilities are designed to stabilise funding markets and limit spillovers during periods of stress without committing to permanent liquidity provision.

For South Africa, whose financial markets are among the most liquid in emerging economies, such access could help smooth short-term dislocations in euro funding while preserving reserves for more persistent shocks. The euro is a significant currency for South Africa’s trade and financial transactions, particularly with European partners, and volatility in offshore funding costs can feed quickly into domestic bond and currency markets.

Kganyago underscored that any decision would be guided by prudence and cost-benefit analysis rather than urgency. South Africa’s reserve position has improved over time, supported by disciplined macroeconomic management and active use of domestic markets to absorb shocks. The central bank has repeatedly emphasised that it does not target the exchange rate, but it does seek to ensure orderly market functioning, especially when global risk sentiment turns abruptly.

The ECB’s broader push to extend repo lines reflects lessons drawn from earlier episodes of market stress, when dollar shortages and sudden stops in capital flows exposed vulnerabilities in emerging markets. By offering euro liquidity against collateral, the ECB aims to limit fire sales of assets and reduce pressure on foreign-exchange reserves. The approach mirrors similar tools used by the US Federal Reserve, though on a more selective basis.

Emerging-market policymakers have welcomed the expansion in principle, while cautioning that eligibility, pricing and collateral terms will determine actual uptake. Access is not automatic; central banks must meet governance, risk-management and transparency standards, and the facilities are typically time-bound. Analysts note that the signalling effect of eligibility can be as important as actual drawings, reassuring investors that a credible backstop exists.

South Africa’s interest comes amid a recalibration of global monetary policy. While inflation has eased in several advanced economies, policy rates remain elevated, and liquidity conditions can tighten quickly when expectations shift. For countries with open capital accounts, that backdrop raises the premium on diversified funding options and robust domestic markets.

The South African Reserve Bank has built a reputation for institutional independence and conservative balance-sheet management, traits that could support eligibility for additional international facilities. Market participants view those attributes as mitigating risks associated with external borrowing and currency volatility.

At the same time, authorities have been clear that external backstops are complements, not substitutes, for sound domestic policy. Structural reforms to lift growth, improve fiscal sustainability and deepen local capital markets remain central to reducing vulnerability to external shocks. South Africa’s bond market depth and a flexible exchange rate have historically absorbed pressure, even during periods of heightened global uncertainty.