SARB and monetary policy

economic effects of contractionary monetary policy

decreases the money supply which leads to decrease in aggregate demand which dampens economic growth and leads to increase in unemployment

banker to the government

different departments, provincial governments and government-owned enterprises keep accounts with the SARB

raising cash reserve requirements

has the effect of decreasing the money multiplier, which effectively decreases the money supply

decreasing cash reserve requirements

has the effect of increasing the money multiplier, which effectively increases the money supply

economic effects of expansionary monetary policy

increases the money supply which leads to increase in aggregate demand which stimulates economic growth and decreases unemployment

instruments (tools) of monetary policy

interest rate open market transactions cash reserve requirements credit ceiling credit rationing disciplinary measures moral suasion

basic functions of the SARB

issues notes and coins it is the bankers' bank banker to the government custodian of gold and foreign reserves lender of last resort central clearing bank credit control economic & statistical information

economic and statistical information

once a quarter, the SARB compiles a publication called the Quarterly Bulletin

main purpose of contractionary monetary policy

put downward pressure on the price level which will lower the inflation rate

credit ceiling

setting a maximum amount of credit that banks may allow to account holders

issues notes and coins

the Reserve Bank has the sole right to issue notes and coins

OMO to increase the money supply

the SARB buys government bonds and treasury bills, banks are paid cash which increases the reserves they have to create new loans

OMO to decrease the money supply

the SARB sells government bonds and treasury bills, banks pay the SARB cash which decreases the reserves they have to create new loans

credit rationing

the SARB sets a restriction of credit by banks so that borrowers cannot obtain the funds they desire at the given interest rate

open market operations (OMOs)

the buying and selling of government securities to alter the supply of money

South African Reserve Bank

the central bank of South Africa

custodian of gold and foreign reserves

the country's gold is stored in vaults at the Reserve bank and foreign currency is stored there as well

repo rate

the interest rate that the SARB charges commercial banks on short-term loans

monetary policy

the process by which the monetary authorities influence and control the money supply and the rate of interest

central clearing bank

to clear debts between banks, funds are transferred from one bank's SARB clearing account to the other bank involved in the transaction

aim of monetary policy

to protect the value of the currency and strive for economic growth, low unemployment and price stability

moral suasion

using the good relationship between the SARB and the commercial banks to persuade them to act in a particular manner

lender of last resort

when banks experience a shortage of funds, they approach the SARB for loans

contractionary monetary policy

SARB increases the repo rate other interest rates will increase this leads to a decrease in the money supply

expansionary monetary policy

SARB lowers the repo rate other interest rates will decrease this leads to an increase in the money supply

banker's bank

all other banks bank with the SARB, they keep all their deposits with the SARB

credit control

an important function of the central bank is to control the money supply so that the value of the currency does not decrease

SARB disciplinary measures

banks must comply with the provisions of the Banks Act and follow the advice and instructions of the Banking Supervision Department of the SARB