The South African Reserve Bank MPC Meeting is tomorrow where the Central Bank is largely expected to keep rates steady. Given all the intrigue locally around the Reserve Bank i thought we could take a look at the history, mandate and policy of SARB
The SARB, like other central banks, operates to fulfill its mandate rather than to make a profit. However, its private shareholders are entitled to dividends. The dividends are limited by law to 10 cents per share per annum, which results in a total dividend payout of just R200,000 each year given that there are two million issued shares. Any profits made by the SARB beyond this amount are paid to the South African government.
For instance, if inflation is above the SARB's target range, it might increase the repo rate. This makes borrowing more expensive and reduces spending, which in turn, lowers inflation. However, this can also slow economic growth and increase the value of the ZAR as higher interest rates attract foreign investors seeking better returns on their investments.
Conversely, if the SARB lowers the repo rate, it stimulates economic growth by making borrowing cheaper, which encourages spending and investment. But this can lead to increased inflation and a weaker ZAR as it may drive away foreign investors looking for higher interest returns. The Chart Below Provides an Excellent Example of the Relationship Between Interest Rate Hikes and its Effects on Inflation.The SARB thus faces a delicate balancing act in its monetary policy decisions. It must maintain price stability and protect the ZAR's value while fostering balanced and sustainable economic growth.The South African Reserve Bank's role in the country's economic framework is pivotal.
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