Reserve Bank reviews open market operations

Extract from the address by Daniel Mminele, Deputy Governor, South African Reserve Bank, at the Financial Market Department’s Annual Cocktail function, Pretoria, 3 June 2010

Managing the overall liquidity in the money market is of the utmost importance to the successful implementation of monetary policy. Having not had any difficulties previously, since December 2009 the Bank began to encounter some challenges in conducting its open-market operations in order to manage overall liquidity. In the process, the money market shortage at times declined to quite low levels. This was mainly due to dwindling demand for SARB debentures, owing to a slowdown in the growth of banks’ balance sheets, which resulted in lower demand for liquid assets that banks have to hold for prudential purposes. The National Treasury’s increased funding in Treasury bills and government bonds similarly impacted demand, while the longer-term reverse repos (LTRRs) were constrained by the ample availability of government bonds in the secondary market, in addition to traditionally limited participation in this instrument.


The Bank consulted market participants not only to obtain a better understanding of reduced participation in the debenture auctions , but also to explain why the participation of banks in central bank open-market operations is essential for the effective implementation of monetary policy. An effective monetary policy implementation framework contributes towards financial stability, which is in the interest of all banks and the system as a whole.

In light of the aforementioned challenges, we are considering some changes to the way in which the Bank conducts its open-market operations and we will be in a position to make announcements soon. For example, the measures being considered relate to modifications in the operation of standing facilities offered by the Bank as well as the use of longer-term foreign exchange swaps. The Bank conducts money market swaps in foreign exchange as a fine-tuning tool to manage money market liquidity.