Reserve Bank bought R11.4bn worth of govt bonds during April

The Reserve Bank bought R11.4 billion worth of government bonds during April, as part of its measures to introduce liquidity to the market.

In March, the bank only bought R1 billion bonds.

This is part of the raft of measures the Reserve Bank announced on 25 March, to deal with the dysfunction in the market brought on by the coronavirus pandemic, which triggered a mass sell-off in emerging market equities and currencies as investors flocked to safe havens.  

The bank has also lowered interest rates by 200 basis points to support liquidity in the economy.

“During times when there is a lack of liquidity in the SA bond or capital market, they [the Reserve Bank] step in and provide some liquidity,” said Chief Economist of the Bureau for Economic Research, Hugo Pienaar. This is not to influence bond yields, but to ensure the “smooth functioning” of the bond market during these exceptional times, he added.

The bank’s statement on assets and liabilities for April, released on Friday, shows that the bank now has over R20.65 billion worth of government bonds.

Last week, Deputy Finance Minister David Masondo said he would support the idea of the Reserve Bank purchasing government bonds directly from Treasury, as part of efforts to fund interventions for Covid-19 and to support structural reforms to lift economic growth.

At a webinar this week, Reserve Bank Governor Lesetja Kganyago would not comment specifically on Masondo’s remarks but said that the bank’s decision to purchase government’s bonds is purely to address dysfunction in the market.

“We understand that a functioning bond market is important for the government, but more importantly for us as a central bank. Our own monetary operations and our own collateral system functions through the bond market and if we see that the bond market becomes dysfunctional then you know that there is a threat that monetary policy itself might not be as efficient,” Kganyago said.