South Africa is at risk of so-called “fiscal dominance,” or added pressure on the central bank to ease the load on public finances because of the coronavirus pandemic, the Financial Times reported, citing Reserve Bank governor Lesetja Kganyago.
There are strong institutional safeguards, such as the bank’s independence and its constitutional mandate to deliver stable prices, the newspaper said, citing Kganyago.
The Reserve Bank has been facing calls from politicians and unions to further deepen rate cuts and buy up more government bonds. Kganyago defended the central bank’s response, saying it had cut the interest rate to a record low, relaxed accounting and capital rules to promote lending, and more than tripled its holdings of South African government debt. He has previously warned that financing the government would ultimately bankrupt the central bank.
“I challenge anybody who’d dare say that the Sarb has not done enough,” the Financial Times cited Kganyago as saying.
South Africa, which has recorded more than half a million infections to date, is facing its biggest downturn in 90 years this year as industry slowly reopens from restrictions.
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