The debt crisis in Europe, which holds around 35 percent of South African government debt, could hit local bonds if it worsens, pushing yields higher than expected, Treasury Director-General Lungisa Fuzile said on Monday.

Fuzile also told Reuters in an interview the rand's current strength against the dollar was helping contain oil import costs, alleviating inflation pressures which would otherwise necessitate higher interest rates.

A lot of South Africa's rand denominated bonds were held in Europe with fund managers in the bloc at one stage sitting at about 35 percent of outstanding stock.

"So if there is negativity in Europe, that demand which we have seen in our local currency bonds could be affected and if that demand gets affected, the yields could pick up and therefore we could end up paying more for the same stock of debt," Fuzile said.

"The situation is highly uncertain but the best we can do is monitor it and to do what is necessary to make sure that if and when things go south we are ready to deal with that situation," he added, without giving details.

South Africa