Page 180 - SARB: 100-Year Journey

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For Tshazibana, the central’s bank’s response was a revelation. She said: “This period of COVID-19 has shown me the Bank can be agile when it needs to be, and that there are lots of young people, hardworking, with excellent ideas. It’s important for an institution to have this level of agility and responsiveness.”
Cassim noted the urgency with which the SARB implemented monetary mitigation measures. “We acted swiftly. There will always be our critics. We acted quickly in view of the fact that the MPC collectively recognised lockdown was going to have a devastating impact on the economy. We front-loaded, so to speak, a series of interest rate cuts. That went along with other things which we have never done before.”
Governor Kganyago summed up the SARB’s response thus: “This shock was more severe than 2008. The manner in which [we] ... deploy[ed] the different instruments became different. “[The COVID-19 crisis] ... does show the speed at which the Reserve Bank can react.”
First the SARB made deep cuts to interest rates in the space of months. Between January and July 2020, the MPC slashed interest rates by a cumulative 300 basis points. This placed the benchmark repo rate at 3.5%, its lowest level since 1998. The central bank was able to do this because “inflation was at, or below, 4.5%. It was projected to be 3.6% in 2020, which meant monetary policy continued to have space to respond,” Kganyago said.
However, South Africa’s fiscal profile had deteriorated. In 2020, the fiscus did not have a surplus, and was projected to run a deficit of more than 14%. Furthermore, South Africa’s economy was forecast to contract by 7%, in what would be the worst downturn in a century. Moreover, the country’s debt-to-GDP ratio had risen to 70%. “In 2020, could we deploy fiscal buffers? Which buffers? There were none,” said Kganyago.
There were additional considerations. The capital outflows had placed pressure on, and caused dysfunction in, the secondary bond market. The stresses induced by the
President Cyril Ramaphosa announced a national lockdown in March 2020. /Phill Magakoe/AFP via Getty Images