Masondo Backs Central Bank Bond Purchases

“Covid-19 and the recent downgrades by the credit-rating agencies have worsened our economic woes. Given our fiscal constraints, I would support the South African Reserve Bank if they decide to directly buy government bonds.”

South Africa’s economy could contract by as much as 16.1% this year, depending on how long it takes to contain the coronavirus pandemic and for the economy to recover, Treasury estimates show.

READ: South African Government’s Assessment of Virus Damage in Charts

Any debt purchased by the central bank would be once-off “special bonds,” and should be treated as a temporary measure with a clear exit plan, he said. Funds from central bank should be used for immediate Covid-19 health-related interventions, public infrastructure, and industrial and agricultural financing as part of economic-recovery measures, Masondo said.

South Africa’s central bank announced March 25 it would buy government securities in the secondary market to boost liquidity. Masondo said it’s the “independent decision” of the central bank to decide how much money it supplies.

“The independence of the Reserve Bank is constitutionally enshrined and protected,” the presidency said in a response to questions. “The expression by the deputy minister of a particular view therefore does not and cannot jeopardize the independence of the Reserve Bank. It should be seen for what it is, a contribution to a public debate on how to address the challenges confronting the country.”