Reserve Bank knows its responsibility during an epidemic, Tito Mboweni says
The finance minister has stressed the need to keep the economy going amid coronavirus fears
Finance minister Tito Mboweni gave his assurances on Monday that he was in conversation with the SA Reserve Bank over how to respond to the economic effects of the coronavirus, and pleaded for an end to the pressure on the central bank to slash interest rates in response to the disease.
“The SA Reserve Bank knows its responsibilities in times of [an] epidemic. Don’t over pressurise them,” Mboweni said.
“Leave the conversation to me and the governor of the Reserve Bank — it's taking place, so don’t worry about that.”
Mboweni was speaking at a media conference, alongside a number of other ministers, outlining SA’s efforts to deal with the spread of the virus. On Sunday evening President Cyril Ramaphosa declared a national disaster in response to the pandemic which began in Wuhan, China.
Ramaphosa announced a series of measures including the closure of schools, travel bans for people from high risk countries and the prohibition of mass gatherings of more than 100 people.
The state is also finalising a package of interventions to mitigate the effects on the economy, Ramaphosa said.
The SA Reserve Bank will still hold its scheduled monetary policy committee (MPC) meeting as planned from Tuesday to Thursday, after which it will make an announcement on whether to cut rates.
The Bank said on Monday that Thursday's media briefing would “take place virtually”, with reporters dialling in. A live-feed of the briefing would also be available online.
Ramaphosa’s Sunday announcement coincided with another unexpected move by the US Federal Reserve to cut its benchmark rate to close to zero and restart quantitative easing — the asset buying programme aimed at injecting liquidity into the financial system.
This is the second such emergency step taken by the US central bank in March. The measures from US authorities were important to prevent a freeze in global liquidity, Mboweni said.
“One of the most important sources of global liquidity is the US dollar and the American authorities have already intervened to make sure that the Fed is able to provide $1.5-trillion of liquidity which oils the global economy,” he said.
Other central banks around the world have taken similar steps in recent weeks, in an attempt to ameliorate the economic affect of the virus, which has disrupted global supply chains and is expected to see global growth slow down dramatically in 2020.
As global central banks have moved, economists have noted that this opens up room for the Reserve Bank to do the same.
Ahead of Ramaphosa’s announcement the consensus was that a rate cut of 25 bps was on the cards for Thursday, according to a Bloomberg survey.
This is despite the sell off of the rand that has followed in the wake of the Covid-19 panic. The currency has fallen 18.8% against the dollar this year.
However, the Bank is also faced with the possibility of a downgrade of SA's last investment grade credit rating from Moody's Investors Service. The agency is due to publish its review of SA on March 27 — just over a week after the MPC sits. In the current climate of volatility, an negative market reaction to a downgrade could be amplified, risking further pressure to the currency.
“I know some of you think you can solve the world’s problems by the Reserve Bank reducing interest rates — you are wrong,” said Mboweni.
Instead he stressed the need to keep the economy going to avoid a slide into a “prolonged recession”.
“Our primary objective at this moment is [to ensure] that the economy does not grind to a halt, it continues to operate. If the economy grinds to a halt we have less tax revenue to finance all these activities,” he said.
Mboweni also indicated that SA authorities were due to hold discussion with role players in the financial services sector — including the leadership of the JSE — regarding ways to mitigate the market turmoil that has wiped off trillions from the local bourse.
“[Trade and industry] minister [Ebrahim] Patel and myself will meet the leadership of the JSE to see what ... can be done. I don’t want to spook the market but we will be having discussions with them,” said Mboweni.
Alongside talks with the JSE, he said conversations will be had with the likes of insurers and banks to try to understand affects on their customers — including, for example, workers who may struggle to maintain contracts such as bond repayments if they are unable to attend work.
CORRECTION: March 16 2020
A previous version of this story incorrectly stated that the MPC would be meeting on Wednesday and Thursday. It will in fact be meeting from Tuesday to Thursday.