Intellidex applauds SA Reserve Bank's new liquidity policy

Market research and consulting firm Intellidex has lauded the latest quantitative easing measures being introduced by the South African Reserve Bank (SARB). These measures include the government’s engagement in long-term repo operations.

The SARB has also made the decision to purchase South African Government Bonds (SAGBs) on the secondary market, all of which is aimed at injecting much needed liquidity in the economy, not least due to the recession-like conditions brought about by the spread of the Covid-19 pandemic.

The SARB introduced some liquidity measures last week in the form of rate cut breaks, which fell short of expectations. As explained by Intellidex, these “allowed banks more liquidity optionality at lower penalty rates on the standing facility and more regular access to repo.” However, given the urgent need for liquidity, Intellidex doubted whether the optionality was enough.

The measures now announced appear to be more effective, as they not only force the hand of banks, but the decision to purchase SAGB’s is expected to generate crucial liquidity in the secondary market. Nevertheless, the move might not be without its political fallout, according to Intellidex.

“The SARB may well be attacked for why it hasn’t done this in the past to help a stimulus and improve poverty alleviation,” said the firm. South Africa’s economy has been in need of liquidity for some time now, as economic stagnation and unemployment have hindered growth in the GDP.

Earlier this year, Intellidex revised GDP forecasts for South Africa to be lower than initially expected, and this was prior to the economic disruption that has resulted from Covid-19. New revisions are likely to be even lower, and the SARB’s actions are critical to ensure the economy survives the upcoming ordeal.

PwC recently released analysis that urged the South African government to follow the example set by other major economies across the globe and cut interest rates. The latest measures are likely to satisfy many economists, although the true economic impact is a challenge to quantify at this point.

South Africa’s economy, much like other markets across the globe, is already grappling with major supply chain disruptions and economic consequences of a global shutdown.