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
