The SA Reserve Bank again purchased over R10 billion worth of SA government bonds in May, as it continues to inject liquidity into the market amid the economic shock of the Covid-19 pandemic.
The central bank purchased R10.2 billion in government bonds on the secondary market last month, down from R11.4 billion in April, according to data published on Friday. In March, by contrast, the bank purchased just R1 billion in bonds. Its total bond holdings have risen to R30.8 billion.
The bond purchases are a monetary policy tool the central bank has announced it will use to correct “dysfunction” in financial markets brought about by the Covid-19 pandemic, as investors flock to safe havens such as the US dollar.
The bank says its intention is not to influence bond yields, but rather ensure the smooth functioning of the bond market.
In an interview with Fin24 last week, Reserve Bank Governor Lesetja Kganyago said that the bank could not simply replicate the quantitative easing measures taken by some central banks in developed markets such as the US Federal Reserve or the European Central Bank.
“Jamaicans have a saying, ‘monkey see, monkey do,'” said Kganyago. It is important to consider the circumstances those countries were facing when they implemented quantitative easing, and to compare it to the circumstances SA is facing to determine if quantitative easing is warranted, he added.
As the Fed purchases government bonds, which injects dollars into the market, people flock to buy those dollars. The same cannot be said of investors flocking to purchase the rand, he explained.
“There are limits of what we can do in terms of injecting liquidity into the system,” he said. The central bank has to be prudent when injecting liquidity into markets, so as not to weaken the currency because that will impact inflation.
But this has not happened yet, said the governor. “Why it has not happened, is testimony that the steps we have take have been done prudently and not recklessly. If we were reckless, it would have manifested in a weak currency.”