SARB adjusts liquidity management strategy

Given the increasing pressure brought to bear on financial markets by the COVID-19 pandemic, the South African Reserve Bank (SARB) has made changes to its liquidity management strategy affecting the application of its open market operations. They ‘should not be construed’ as ‘signals’ of a different approach to monetary policy and ‘will be assessed on a continual basis’, CompliNEWS contributor Pam Saxby reports.

Effective from last Friday, according to a media statement announcing the move, ‘intraday overnight supplementary repurchase operations’ in the form of auctions will be conducted daily at 10:00 and 13:00 (except on Wednesdays) to address ‘liquidity strains in various funding markets’. In this regard, the statement refers to ‘a fixed-rate auction with a pro-rata allotment’ and an interest rate ‘equal to the repurchase (repo) rate’. ‘The amount on offer will be decided (each) day, in line with ... prevailing money market liquidity conditions,’ it continues – adding that ‘end-of-day supplementary facilities will no longer be offered’.

Although the additional money market liquidity provided to clearing banks will reduce ‘the current money market shortage’ to below the R56bn target level, ‘the size of the (SARB’s) main refinancing operations will be kept at R56bn’ – unless an increase is ‘deemed necessary’. The standing facilities borrowing rate (at which the SARB absorbs liquidity) will be adjusted to the repo rate less 200 basis points (double the previous number), while the lending rate (at which the SARB provides liquidity to commercial banks) will be adjusted ‘lower to the repo rate’. This will ‘support’ banks in their efforts to facilitate ‘their flow of money market liquidity’ within the banking system ‘without being penalised’.