South Africa’s rand traded slightly firmer early on Friday, recovering from a sharp dip in the previous session after the country confirmed its first case of coronavirus.

South Africa’s central bank announced a raft of emergency liquidity measures on Friday to ease the stress on banks caused by the coronavirus outbreak.

The move follows a 100 basis point cut by the South African Reserve Bank (SARB)to its main lending rate on Thursday to help the flagging economy and comes amid severe liquidity strains in funding markets.

Central banks the world over have been slashing interest rates and pumping trillions of dollars into the financial system, helping trigger a 1% recovery in global stock markets on Friday and causing the dollar to come off its highs against other currencies.

South African assets have come under huge strain in the past two weeks as the coronavirus has rapidly spread around the world, and some local banks have struggled to access short-term funds. South Africa has 150 confirmed coronavirus cases but has not yet reported deaths.

Since the beginning of February the rand has plunged more than 10%, bond yields have risen to all-time highs and around 4 trillion rand ($233 billion) has been wiped off the Johannesburg Stock Exchange (JSE) in heavy selling across emerging markets.

“In recent days, as financial markets have come under increased pressure with the spread of the COVID-19 pandemic, the SARB has observed liquidity strains in various funding markets,” the bank said in a statement, less than 24 hours after announcing its policy decision.

THREE MEASURES


The bank on Friday announced three main changes aimed at the money market, which facilitates shorter-term borrowing by banks and the government, usually through instruments with durations ranging from overnight to 12 months.

“The Standing Facilities lending rate – the rate at which the SARB provides liquidity to the commercial banks – will be adjusted lower to the repo rate, from the prevailing rate of the repo rate plus 100 basis points,” the bank said in a statement.

“This will support banks to facilitate their flow of money market liquidity without being penalised.”

Other measures included daily fixed-rate auctions to provide liquidity to clearing banks, with an interest rate that is equal to the repurchase rate, currently at 5.25%.

The bank said the additional money market liquidity would result in the current money market shortage declining below the current target level of 56 billion rand ($3.24 billion).

“The (rate) cut yesterday did not do enough to normalise interbank market conditions,” said George Glynos, director and head of research at ETM Analytics.

“This is an indication that pressures on interbank markets through credit constraints is building significantly. The measures are timely and the SARB has been quick off the mark, but we’ll have to wait and see if they work,” said Glynos.

At its policy announcement on Thursday the bank said it was it ready to act outside of scheduled meetings to temper the recent market fallout.

But in the statement on Friday it stressed the measures were not to be taken as “providing any signals with regard to the future monetary policy stance”.


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