SARB to splash cash on government bonds, will ‘increase market liquidity’

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The SA Reserve Bank (SARB) said on Wednesday said it would begin buying an unspecified amount of government bonds as part of additional emergency policy measures aimed at alleviating a liquidity crisis caused by the coronavirus outbreak.

Don’t call it quantitative easing…

As the country prepares for lockdown, the major banks and financial institutions need some support. Earlier this week, Cyril Ramaphosa unveiled a range of support measures to keep businesses afloat.

The SARB measures have been referred to as “quantitative easing” by some, fearing this could open a very dangerous gateway to printing more money. SARB, however, have remained diplomatic in their communications and have simply stated that they are solely focused on managing market liquidity.

SARB statement on increasing liquidity

They’re looking to buy-up a number of government bonds, giving the economy something of a boost. They also confirmed that any further decisions on increasing – or scaling back – liquidity measures will be considered at a later date:

“SARB will commence a programme of purchasing government securities in the secondary market. The purchases will be conducted across the yield curve. 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).”

“The MPP is one of the instruments in the SARB’s toolkit for managing money market liquidity, and can be used to add or drain liquidity from the market. The amount and maturity of the bond purchases will be at the discretion of the SARB. We will continue to assess market liquidity conditions and make adjustments as appropriate.”

“Any changes to the liquidity management strategy by the SARB should not be construed as providing any signals regarding the future monetary policy stance.