Series preface
In light of recent criticism of economic policy in South Africa, particularly the role and responsibilities of the South African Reserve Bank, this series of briefs will provide background and discuss the issues.
The series will cover the following:
- The South African Reserve Bank currently
- Monetary policy
- and the provision of liquidity
- and inflation targeting
- and the promotion of economic growth and employment
- versus fiscal policy and the budget deficit
- Exchange rate intervention, eg to stimulate exports
- Monitoring of asset prices
- Promotion of Johannesburg as a financial centre
Introduction
The main reason for the operations of the South African Reserve Bank (the Bank) in the money market is to implement the Bank's interest rate policy as determined by the Monetary Policy Committee (MPC), with the aim of achieving the Bank's inflation target. In its monetary operations, the Bank endeavours to promote financial stability by managing the liquidity needs of the banking system as a whole. It also contributes to the development and efficiency of the domestic financial markets, in particular the interbank market.
The monetary policy implementation framework
The Bank's refinancing system is the main mechanism that the Bank uses for implementing its monetary policy. Through its refinancing system, the Bank provides liquidity to banks enabling them to meet their daily liquidity requirements. "Liquidity" in this context refers to the banks' balances at the central bank that are available to settle their transactions with one another, over and above the minimum statutory level of reserves that they have to hold. In terms of its monetary policy implementation framework, the Bank creates a liquidity requirement (or shortage) in the money market, which it then refinances at the repurchase (repo) rate – a fixed interest rate determined by the MPC.
