Like so many other countries around the world, South Africa was faced with responding to the COVID-19 pandemic. Here's how both the government and the reserve bank reacted.
South African Reserve Bank
On 20 March 2020, the South African Reserve Bank, the country's central bank, cut its benchmark repo, or repurchase, rate by 100 basis points to 5.25% from 6.25%. On 15 April it reduced it further by 100 basis points to 4.25%, and on 22 May it cut it another 50 basis points to 3.75%.
The bank also increased liquidity available to the banking sector by raising the size and duration of repo facilities and by buying government bonds. Together with banks and the National Treasury, the Reserve Bank implemented a guaranteed loan programme for small and medium-sized enterprises (SMEs) to be used for operational expenses such as salaries, rent and lease payments, and payments to suppliers.
The Reserve Bank's Prudential Authority, which regulates the country's banks, insurance companies and other financial institutions, lowered liquidity coverage ratios and capital requirements for the nation's banks. It also provided capital relief on restructured loans that were in good standing prior to the crisis.
South African Government
The South African government introduced several "unprecedented" measures to protect the country's people and businesses during the pandemic.
On 18 March, the government announced a Debt Relief Fund to help SMEs meet their debt repayment obligations. The Business Growth or Resilience Facility will provide funds for working capital, inventory, bridge financing and other purposes for SMEs involved in the manufacturing or supplying of products in short supply due to the virus.
There's also the Employment Tax Incentive (ETI), which is a cost-sharing agreement with the government. It provides employers with an immediate cash benefit to encourage them to hire workers between 18 and 29 years of age.
The COVID-19 Temporary Employee/Employer Relief Scheme provides a special unemployment benefit for people who have lost all or part of their income as a result of the pandemic. The programme also provides benefits to workers who had to quarantine for 14 days as well as a death benefit to the families of those who died from the virus.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…