HILARY JOFFE: If state can’t pay its way, it should not expect the Bank to do so

26 July 2020 - 00:08 By Hilary Joffe

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...

This article is reserved for Sunday Times subscribers.

A subscription gives you full digital access to all Sunday Times content.

Already subscribed? Simply sign in below.

Registered on the BusinessLIVE, Business Day or Financial Mail websites? Sign in with the same details.

Questions or problems? Email helpdesk@timeslive.co.za or call 0860 52 52 00.