South Africa's central bank starts buying bonds

The bank says it will buy government bonds across the curve. 

South Africa’s central bank on Wednesday launched a bond-buying programme, seeking to drum up demand in credit markets as the coronavirus epidemic weighs on the country’s already ailing economy. The South African Reserve Bank (SARB) did not specify the amount of government bonds it would purchase from the secondary market. 

The SARB, which is led by governer Lesetja Kganyago (pictured)has long resisted public and political pressure to intervene more directly in providing stimulus. Wednesday’s move brings it into line with major central banks across the developed world that have run large-scale asset purchase programmes.

The SARB's bond-buying programme is widely perceived to be a form of quantitative easing, which is a tool that central banks use to buy government debt in open markets in order to protect the financial system, increase money supply, encourage lending and investment. 

South Africa’s economy will come under increasing pressure as it enters a 21-day national lockdown from Thursday, ordered by President Cyril Ramaphosa in response to the spread of Covid-19, of which more than 700 confirmed cases have been registered, but as yet no deaths.

The country’s bond market has been short of buyers since February, while daily sales of sovereign debt have regularly topped R4 billion ($230 million), including a record R12.8 billion on 2 March.

The bank said it would buy bonds of varying maturities in the secondary market, without giving further details. The move should boost the take-up of government debt and make it easier for commercial banks to fund their operations.

The bank delivered a surprise 100 basis point cut to its main lending rate on Thursday to help the economy, and said it stood poised to cut further if market volatility continued.

South African banks and financial firms have in recent weeks seen a sharp increase in redemptions of short-term funds, as well as higher margin calls, while primary dealers – who buy government securities to sell on the secondary market – have struggled for buyers.