South Africa’s central bank said it is opposed to buying government bonds on a large scale during times of economic crisis because doing so would amount to bailing out investors who were paid generous yields to hold long-term debt, and have negative consequences for fiscal consolidation. Stimulus should instead be provided in the form of lower borrowing costs when warranted, the South African Reserve Bank said in a working paper published on its website on Monday.
The bank also warned that it risked becoming an enabler of artificially depressed rates should it aggressively intervene in the bond market. Surging debt and debt-service costs, the fastest-growing expenditure line item in the budget since 2011, are key risks to fiscal sustainability. Debt is expected to peak at 75.1% of gross domestic product in the 2025 fiscal year, according to the National Treasury.
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