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ECS3701 Assignment 2 Semester 2 2023 (767135)
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ECS3701MONETARY ECONOMICS
ASSIGNEMNT 02 SEMESTER 1 2022
QUESTION 2
2.01.
(a) As an economist, what advice would you give the South African Reserve Bank
(SARB) regarding the continuous increase in interest rates? In your answer indicate
whether you think the SARB MPC is doing the right thing. Explain why and what can 2
be done better, if any. If you believe this move is correct, explain why you think this is
so.
In general, raising interest rates can help to reduce inflation by making borrowing more
expensive, which can reduce demand and slow down economic activity. On the other hand,
lowering interest rates can encourage borrowing and spending, which can stimulate economic
growth but may also lead to higher inflation.
Based on Governor Lesetja Kganyago's statement, the SARB is committed to maintaining its
focus on price stability through flexible inflation targeting. This approach suggests that the
bank may be more inclined to raise interest rates to curb inflation rather than lower them to
stimulate growth.
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