SARB sharpens its tools for interest rates in South Africa
The South African Reserve Bank has implemented a new toolkit for assisting in the execution of monetary policy in the country.
The latest decision from SARB’s Monetary Policy Committee was the surprising move to hike interest rates by 50 basis points in late March. This hike took the repo rate to 7.75% and the prime lending rate to 11.25% – a 14-year high.New system Cassim said the SARB had made money to assist the banking system through loan creation. Explaining the method by which the bank created a sum of money, he provided the following example:
He said that having extra money available means that the SARB could stop draining liquidity and unwind operations that let banks hold extra cash instead, on which they could earn the policy rate.. But the deposit facility forms a floor: it is not attractive to lend to anyone else or buy assets with an inferior return to what the SARB offers. For this reason, these frameworks are often called floor systems,” said Cassim.
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