Exam (elaborations)
ECS3701 Assignment 2 Semester 1 2023 (767135)
- Institution
- University Of South Africa
ECS3701 Assignment 2 Semester 1 2023 ()
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ECS3701Assignment 2
Semester 1 2023
o
, ECS3701 Assignment 2 Semester 1 2023
2.01 Read the following excerpt from Business Tech below and answer the
questions that follow:
“South Africa’s central bank said it will continue using interest rates to curb
inflation, and responded to calls for its mandate to explicitly include
promoting economic growth and creating jobs by saying monetary policy
already targets those indicators. At 6.25%, the Reserve Bank’s repurchase
rate is still below long-term levels and in expansionary territory, Governor
Lesetja Kganyago said in a speech in Johannesburg on Tuesday. The
consequences of the central bank loosening its grip on inflation and falling
behind global peers as rates are being normalized would be “too costly,” he
said. “The best chance we have with monetary policy to get faster, more job-
rich growth is to maintain our focus on price stability with flexible inflation
targeting, a proven framework.”” Source: Reserve Bank says more interest
rate hikes are coming
(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. [10]
As an economist, my advice to the South African Reserve Bank (SARB) would
depend on the prevailing economic conditions. However, based on the
information provided, it seems that the SARB is currently pursuing a policy of
inflation targeting by using interest rates as a tool to curb inflation. In my
opinion, this is a prudent approach to maintain macroeconomic stability.
Given that the SARB's repurchase rate is still below long-term levels and in
expansionary territory, it may be necessary to continue increasing interest rates
to ensure that inflation remains within the target range. While some may argue
that the SARB's mandate should include promoting economic growth and
creating jobs explicitly, it is important to note that monetary policy already
targets these indicators indirectly. The best way to achieve sustainable
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