One can interpret this as a profit transfer rule: the NT owns the valuation gain while the SARB income must eat the negative carry.3 The NT proposal to transfer R150 billion of the GFECRA to the NT changes the accounts as shown in Table 2.4 The SARB would not touch its FX reserves.5 Instead, it would replace part of the GFECRA liability with a liability to commercial banks as it paid into the NT’s. [...] Similar to a debt management announcement of the issuance of fewer bonds and more bills, South African government bonds rose in price in the aftermath of the budget announcement including the transfer from the SARB to the NT. [...] In addition, the government pays more than the SARB, even at the short end of the yield curve.7 A risk cited by a major rating agency (Gupta and Gill 2024) is that the transfer from the SARB to the NT is seen to weaken the central bank. [...] An Alternative Market for SARB Borrowing? Are excess reserves the SARB’s cheapest source of borrowed rand? If the rationale for the trans- fer from the SARB to the NT is to locate the consolidated debt on the public sector balance sheet where the interest cost is lowest, it is worth asking this question. [...] The rationale for the first is to leave a buffer against rand appreciation, the second is to reduce govern- ment debt, and the last is to pay the additional interest cost of the excess reserves that will fund the transfer to the NT.
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- Published in
- United States of America
