JOHANNESBURG (Reuters) – South African assets recovered on Wednesday after the central bank launched a bond-buying programme, seeking to drum up demand in credit markets as the coronavirus epidemic weighs on the country’s already ailing economy.
At 1400 GMT the rand was 0.4% firmer at 17.4800 per dollar, pulling back for a session best of 17.2600 hit soon after the South African Reserve Bank’s (SARB) announcement that it would purchase government bonds for an unlimited period.
The bank has long resisted public and political pressure to intervene more directly in providing stimulus. Wednesday’s move brings it into line with major central banks across the developed world running large-scale asset purchase programmes.
Bond markets in particular were buoyed by the announcement having suffered three sessions of heavy selling that pushed yields up to record highs.
At 1400 GMT the yield on the benchmark 2026 issue was down 70.5 basis points to 10.515%.
“The reduction in SA’s bond yields reflect some improvement in prices, but a full retracement in government bond yields to pre-crisis levels has not occurred yet,” Investec chief economist Annabel Bishop said in a note.
“The drop in yields today reflects some reduction in market uncertainty however.”
Indications that the United States was poised to pull the trigger in $2 trillion stimulus package also aided riskier assets, as the potential flood of cheap money prompted investors who had liquidated holding to buy dollars to reconsider.
South Africa’s growing coronavirus infections, which reached 709 – from just over 500 a day earlier – as the country prepared for a lockdown starting midnight on Thursday, looked set to drag the economy deeper into recession.
Stocks firmed, backed by the return of risk appetite, with the Johannesburg Stock Exchange’s Top-40 index as well as the broader All-Share index both up 4.7%, led higher for a second straight day by resources and financial firms.
Minister of Mines and Energy Gwede Mantashe said on Wednesday that the processing of platinum group metals (PGMs) would continue during a 21-day national lockdown over coronavirus starting at midnight on Thursday.
South Africa is a leading producer of platinum, palladium, coal and gold, and the mining sector accounts for around 13% of the country’s GDP.
Platinum producers Northam and Impala and Anglo American Platinum led the charge, rising 21%, 17% and 24% respectively.
(Reporting by Mfuneko Toyana; Editing by Olivia Kumwenda-Mtambo and Alex Richardson)