Reserve Bank announces more coronavirus relief measures

The South African Reserve Bank (SARB) has launched additional relief measures to ease South Africa’s financial crunch during the coronavirus lockdown.

In an announcement on Wednesday (25 March), the central bank said it would begin buying an unspecified amount of government bonds as part of additional emergency policy measures aimed at easing a severe liquidity crunch triggered by the coronavirus.

“The SARB will commence a programme of purchasing government securities in the secondary market. The purchases will be conducted across the yield curve,” the bank said.

“In addition to providing liquidity and promoting the smooth functioning of domestic financial markets, this will allow the SARB to enhance its Monetary Policy Portfolio (MPP).”

Last week, the SARB said it would restructure its market liquidity management strategy, which will give some relief to banks and funding markets which have taken strain because of the global market crash due to the coronavirus.

“When markets are tight the SARB needs to ensure that banks have easier access to funding and that there is sufficient liquidity in the market,” said Alvin Chawasema, a trader at Sasfin Securities.

“They are lending cheaper to banks now and making it more punitive for banks to park money at the SARB, effectively encouraging inter-bank lending and activity.”

The central bank said it will provide intraday liquidity support to clearing banks, through auctions conducted daily between 10h00 and 13h00 – except Wednesdays when the main repurchase transaction is conducted.

This will be carried out at an interest rate equal to the repo rate.

According to SARB, this additional liquidity will result in the current money market shortage declining below the current target level of R56 billion. The size of the Main Refinancing Operations will be kept at R56 billion, but may be increased if deemed necessary to meet demand.

The SARB also announced that it will be adjusting the standing facilities borrowing rate (the rate at which the bank absorbs liquidity) as well as the the standing facilities lending rate.

The borrowing rate will be adjusted to the repo rate -2%, from the repo rate -1% it currently uses, and the lending rate will be adjusted to below the repo rate, from the repo rate +1% it currently uses.

“The SARB deemed this change necessary in order to encourage the flow of money market liquidity, and to support banks to facilitate their flow of money market liquidity without being penalised” it said.

Read: Junk rating likely the least of South Africa’s problems