South Africa’s Reserve Bank (Sarb) on Wednesday said it would begin buying an unspecified amount of government bonds as part of emergency measures to ease a severe liquidity crunch caused by the coronavirus.
“The Sarb will commence a programme of purchasing government securities in the secondary market,” the bank said in a statement, adding that it would buys bonds of varying maturity dates.
“In addition to providing liquidity and promoting the smooth functioning of domestic financial markets, this will allow the Sarb to enhance its Monetary Policy Portfolio (MPP).”
It is the first time the bank has entered the bond market in such a manner but traders said it was unlikely to be the last such measure.
The bank’s senior manager for market operations, Samantha Springfield, said there was no predetermined amount for the purchase, but that the aim was to “assist in adding liquidity to the bond and money market.”
In the statement the bank also said it would offer repurchase agreements, or repos, for periods of 7 days to longer-term maturities of up to 12 months.
Bond prices reacted positively to the announcement, with most long-dated instruments seeing bond yields fall 1% or more.
“The bond market had dried up completely, there were no buyers in sight, just sellers,” said FNB portfolio manager Wayne McCurrie, adding that the buy-sell spread had shot up from 1 or 2 points got to around 30 points in the last session.
“It was a combination of the virus, the lockdown, panic worldwide and concerns about the Moody’s rating decision due on Friday,” McCurrie said.
“This (the bank’s decision) will bring back some sanity.”
The bank delivered a surprise 100 basis point cut to its main lending rate on last Thursday to help the flagging economy, and now stands poised to cut further if market volatility continues.