Sarb starts buying bonds to inject emergency cash

Reserve Bank says it will buy across the curve; it’s expected to cut interest rates further.
The South African Reserve Bank in Pretoria. Image: Moneyweb

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 Reserve Bank (SARB) 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.

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 4 billion rand ($230 million), including a record 12.8 billion rand on March 2.

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.

Room for rate cuts

Duma Gquble, an independent economist, said it amounted to quantitative easing, “something we’ve called for for a long time.”

“We’re headed to an era where the separation of fiscal and monetary policy doesn’t make sense anymore,” he said.

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.

“The bond market had dried up completely, there were no buyers in sight, just sellers,” said FNB portfolio manager Wayne McCurrie.

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.

Adrian Saville, head of Canon Assets, said that was on the cards in coming weeks.

“We’ve got a lot of room to cut, about 5% of ammunition,” he said.

“We’re looking at a budget deficit in 10% territory after this passes. But in the meantime the SARB has latitude to be far more aggressive, even leaning into the world of helicopter money and giving every South African “x” amount for the next three months.”

In its statement on Wednesday, the bank also said it would offer repurchase agreements, or repos, for between seven days and 12 months.


Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.


In other words, the Reserve Bank is acting proactively to prevent a run on the banks. In economic terms, it cannot get more serious than this. This tool is the sledge-hammer in the emergency toolbox to pannel-beat the banking system. It tells us everything about the state of the economy when a Reserve Bank begins to print money to lend to the government.

The Reserve Bank is not bailing out the government though, it is bailing out the banking system. Who stands to lose the most when the system fails? It is me and you. Average citizens, grant recipients, pensioners, savers and salary-earners. So, in effect, the Reserve Bank is bailing us out.

They had no choice. The alternative is too ghastly to contemplate.

Quantitative Easing it is what it’s called, but it won’t work on these high interest rates. Rates must be as near as possible to 0% for it to have real economic efficacy.

Why? Interest rates in Venezuela and Zimbabwe were nowhere near zero when there Reserve Banks monetized the debt. The point is- when the Reserve Bank prints the money to buy government bonds the level of the interest rate is a result of this action, and the efficiency of money printing is not determined by it. You can devalue a currency at any level of interest rate by simply printing more of that currency.

Interest rates are irrelevant if no one borrows and banks dont lend because of a poor view of the future. I will borrow at 20% if I can make a return. I will not borrow at 1% if I don’t think I can make 1% return.

We need to fix the outlook in order for any stimulus to work.

For now it is mattress time (for my cash, not for me)

Use a little common sense dude.
You can issue free money to the economy and expect repayment at an interest. If you do QE, then make REPO to be 0% and banks can charge 3% prime. That’s how QE can be effective and help a lot of people.

can i help please?

i got a R500-game-color-printer

Add more toilet paper to fight the virus, long gold short the banks

This is what I wrote on March 22, 2020 under a different articale.

We don’t have a choice – just start printing money and come forward with tangible stimulus packages (while we can!)and freeze/defer
all loan repayments for at least three months…we can deal with the resultant inflation etc when the ”dust” finally settles!

The consequences if we don’t come up with an immediate and targeted fiscal response is what is needed to keep businesses and households afloat, will be too ghastly to contemplate – we all know that most households are only one ”paycheck away from bankruptcy”.

Commercial banks are holding a lot of reserves (reserve requirement assets) at the Reserve bank – at zero rates. These funds should be applied as part of any huge ”economic stimulus package” by the banks and guaranteed by the government – if not, lift all bans and allow business as usual and let mother nature take care of the rest!

12 Comment on story: SA economy silence contrasts with drastic virus steps

Ah yes, they’re breaking out the printing presses. Today for a little COVID19 economic stimulus, tomorrow for the mostly Rand-denominated SOE debt.

So it turns out no checks and balances needed for the government to bring out the printing press.

Are we about to be quantitatively eased into an inflationary spiral?

Guess the there’s nothing in the constitution to prevent the government from devaluing your property.

Duma Gquble, an independent economist, said it amounted to quantitative easing, “something we’ve called for for a long time.”

“We’re headed to an era where the separation of fiscal and monetary policy doesn’t make sense anymore,” he said.

QE is very misunderstood. Even it seems by the venearble independent economist listed above. Its primary function is not to support the economy but to maintain liquidity – to make sure that banks continue to lend to each other and that people believe the value of R1 today will be more or less R1 tomorrow, if people do not believe this you will look to use your rands to put it into other assets, buy gold hoard toiletpaper, whatever. This plays itself out in the worlds money markets as well which is why we have seen a flight into liquid dollars.

This guy to put it politely is talking through his bum, there will always be a vast difference between monetary and fiscal policy.

Only country’s falling in the group self supporting can do de printing called Q easing. Meaning looking after the right people. The poor for a fact do not belong in that book. Good for voting but nothing more. The switch to freedom inflicted a rudder change locally. Some poor became rich beyond dreams. Standing on watch now, the ship is slowly turning course again. Emigrants from Europe did look for better life due to the same process. This planet really needs a helping hand. It explain religion, as last hope.

Can somebody explain in simple terms how this is supposed to work?

Ordinarily the bond issuer would buy and effectively redeem their own bonds when the price suited them. ie cheaply. If I owed the bank R5m on a mortgage but there was a pricing mechanism whereby my mortgage had a public price, I would buy my own mortgage at R4m. bargain.

If government is buying bonds to create demand then it is artificially supporting the price of its own bonds. I say stuff it : let the sellers take a bath and only buy it when it makes sense to buy it = when it is cheap enough.

Where does the money come from to buy the bonds? From issuing new bonds?

I know business but I don’t get government finance :/

@ Johan Buys…

Central bank purchases securities and bonds = LOWERS INTEREST RATES = triggers additional borrowing by business = hence increases spending, and job creation = resulting in revived economic activity and growth.


Simply google Quantitative Easing… informative read that.


until the yield curve inverts…
what would happen if they did not chase up the prices by creating demand? The bankers lose money, can’t have that…
where does the money come from – new issues of bonds? Nice way to create fees for the industry…

The holders would sell for less, and are in any event not likely to be buyers of the new bonds issued to pay those sellers for the old bonds. Just buy back bonds when they are cheap enough.

Perhaps government (If it wants to stimulate) should rather lend to business cheaper than the rates at which businesses pay. I recently had a chance to work that out on business equipment that I wanted on a lease because of the servicing. When I offered to pay a very large deposit, a quick spreadsheet exercise means my deposit and new low lease payment works out that I earn or save 37% per annum on my deposit. The banks’ cost on the money lend out is about 7%

Hopefully this is not QE ANC-style i.e. borrowing in the market to buy back bonds!!!

If QE is funded from reserves then it’s OK. If money it’s just printed like in Zimbabwe we are in for serious trouble. If the reserve bank did not use money from reserved they have made the first step in becoming a “printing shop” and when the foreigners smell this our currency will be worthless.

R20 to the dollar guaranteed !!

You don’t understand stop confusing others…
Our money is FIAT… you don’t base it on a standard. Reserves are for foreign trade not for bailouts.
QE is a government decree, remember all the money borrowed or created in the country will eventually be paid back by the citizens. We carry this burden whether we like it or not. But in times of economic slowdown, calamity or war the government should relieve the citizens of hardships. American yesterday approved USD 2 trillion in stimulus. They don’t have that in reserves.

I don’t think you understand. First world countries can afford to print money as they have massive underlying economies so their government and people will be good for it from an international perspective. Third world countries do not, SA is trying to play with the big boys and if we are starting to print money in the context of much higher inflation , a weak currency and gross mismanagement at SOE’s we are on a very slippery road.

There is nothing that wastes time than try to educate someone or help in understanding a concept to someone who is fixated in his own half baked knowledge…

You know what JT… You are 100% correct. I give up.

End of comments.





Follow us:

Search Articles:Advanced Search
Click a Company: