The SARB’s purchases of bonds was revealed by the bank’s “statement of assets and liabilities” for June, which showed that it had bought R5 billion worth of South African government bonds during the month, taking its total holdings of such securities to just under R36 billion. In May it had purchased about R10.2 billion rand worth. Among other things this is an indication that relative stability has returned to such markets. 

The SARB embarked on emergency measures in March in response to the Covid-19 pandemic and the impending lockdown, including the slashing of interest rates and the injection of liquidity into financial markets through the purchase of government bonds. 

“When the SARB began intervening in the South African government bond market, on 20 March, we had seen trading thin out, with even small transactions causing bond prices to move abruptly. By purchasing bonds in the secondary market, the SARB has helped restart price discovery and has encouraged the re-entry of private sector participants,” Kganyago said in an online lecture in June. 

In that lecture the governor pointedly shot down calls from labour, some economists and the ANC left for the SARB to inject steroids into its bond buying programme by cranking up the printing press. 

“The proposals on the table for more bond buying are not modest. I have seen one call for a trillion-rand fiscal stimulus financed by the SARB, and another for SARB bond purchases of R10-20-billion per week to continue until ‘economic recovery is well underway’. These numbers imply that the SARB would be buying, more or less, all new debt for the foreseeable future,” he said. 

He went on to say that intervention at such a scale would send a “dangerous signal … that the domestic currency will no longer be issued by a credible, inflation-targeting central bank, but by one that is fully financing the public sector instead.” 

The signal from the June data is that the SARB remains a credible, inflation-targeting central bank. BM/DM