HILARY JOFFE: If state can’t pay its way, it should not expect the Bank to do so
Investors are worried about the outlook for SA’s public finances over the long term
If short-term money is so cheap, why is long-term money so expensive? With inflation well under control and the economy crashing, the Reserve Bank cut interest rates yet again this week, which means the benchmark repo rate has dropped from 6.5% at the start of this year to 3.5% — and the prime interest rate, off which banks price overdrafts and other loans, has come down. The last time short-term rates were this low in SA was in the early 1970s. But try to borrow longer term — as the government has to do in large quantities — and it's not a happy picture.
The yield at which the government's 2026 bond is trading in the market, effectively the interest rate it has to pay to get a five-year loan, is 7.5%. That jumps to about 9.2% on the 10-year bond and about 11.5% on the 30-year bond. This is the “exceptionally steep” yield curve the Bank’s monetary policy committee commented on with concern this week...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.