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The South African Reserve Bank (SARB)

Primary Objectives

• Development and Maintenance of Financial Markets

• Achievement and Maintenance of Price Stability

• Efficient Provision of Banking Services to Government

• Provision of Statistical Data and Information to the Public

Governance

• Appointment of Deputy GovernorsThe three deputy governors of the SARB are appointed by:

  • A. The President of South Africa

  • B. The Governor of the SARB

  • C. The Minister of Finance

  • D. Parliament

Operations in Financial Markets

• Main Reason for OperationsThe SARB's operations in the financial markets primarily focus on:

  • A. Diversification of the government asset portfolio

  • B. Investment of short-term deposits for the public sector

  • C. Implementation of the interest rate policy

  • D. Management of the official foreign exchange reserves

Liquidity Requirements and Policy Instruments

Creating Liquidity Shortage

• Instruments UsedThe SARB creates a liquidity requirement (shortage) in the money market using:

  • i. Statutory cash reserve requirements

  • ii. Open-market operations

  • iii. Government budget deficits

  • iv. Exchange rates

• Correct Answer: A. (i) and (ii) only

Support for Banking Institutions

Measures to Encourage Secure Banking

• Monitoring Financial Risks

  • SARB actively monitors financial risks undertaken by banks.

• Lender-of-Last-Resort Assistance

  • Provides assistance when a bank's failure poses a serious threat to the financial system.

Financial Stability Committee (FSC)

Objectives of the FSC

• The objective of the FSC is to:

  • Complement the price stability objective of SARB.

  • Formulate and implement appropriate macroprudential policy measures to limit costs of system-wide distress in the financial system.

Transmission Mechanism of Monetary Policy

Concept Overview

• Link Between Actions and Economic Outcomes

  • The transmission mechanism involves relationships linking central bank actions to aggregate demand and inflation.

• Initial Steps

  • Central bank actions on short-term interest rates affect financial markets, particularly the money market.

• Impact on Broader Economy

  • Movements in interest rates impact other rates and the exchange rate, which ultimately affects aggregate demand and inflation in the real economy.