SA Reserve Bank to buy govt bonds to inject liquidity into market amid Covid-19 crisis
The SA Reserve Bank has introduced additional measures to manage liquidity in financial markets during the Covid-19 crisis, including the purchase of government bonds on the secondary market.
This follows an initial raft of interventions announced last week to provide lenders with cheaper access to funding, and reorganise the way it injects liquidity into the financial system, as Bloomberg reported. At the time the bank said it would assess the liquidity management strategy on a continual basis.
Samantha Springfield, acting senior manager: market operations and analysis at the Reserve Bank shared with Fin24 the significance of the changes.
The Reserve Bank announced on Tuesday that it will be buying government bonds from the secondary market; not directly from Treasury which is the primary market. The amount and maturity of the bond purchases will be at the discretion of the SARB.
"That will also inject liquidity into the market and also help to relieve some pressure in the bond market that is currently being experienced," Springfield said.
Last week, the SA Reserve Bank through its Open Market Operations Desk undertook to offer intraday daily supplementary repurchase agreements with clearing banks, at the repo rate. The Reserve Bank would offer additional liquidity to clearing banks twice a day, on an overnight basis, Springfield explained.
The daily supplementary repurchase agreement, or repo, was an additional measure to the seven-day/ weekly repo; an agreement in which clearing banks would return money to the Reserve Bank after seven days.
It had become evident to the Reserve Bank that funding would be required over a longer period which is why a three-month repo has now been introduced.
"So in addition to the daily supplementary facilities and the seven-day weekly repo, we will now also include a three-month repurchase operation," Springfield said. "In that manner, the term funding will be transmitted to other parts of the market and this should alleviate liquidity pressures," she added. The Reserve Bank is now essentially providing liquidity through those three repurchase agreements.
The Reserve Bank will continue to assess the situation.
Earlier this week, President Cyril Ramaphosa announced a national lockdown of 21 days, in order to arrest the spread of the novel Covid-19. The president said that the Reserve Bank would work proactively to provide additional liquidity to the financial system. "The governor has assured me that the [Reserve] Bank is ready to do 'whatever it takes' to ensure the financial sector operates well during this pandemic," he said.
During the lockdown the banking system would remain open, and the JSE would continue to function, Ramaphosa said. "The national payment system will continue to operate and the Reserve Bank and the commercial banks will ensure that bank notes and coins remain available," he added.
Global financial markets have plunged as a result of the Covid-19 outbreak. The rand has been trading at record lows, having breached the R17/$ mark, with analysts projecting it to weaken beyond R19/$ as the likelihood of a global recession rises.