Answer to Question #293910 in Macroeconomics for Travis

Question

Earlier this year the SACP called for the expansion of the SARB’s mandate to include employment creation. Argue the case against this.

Answer 1

The repo rate, which is the interest rate at which the SARB lends to commercial banks and supports domestic interest rates, including the prime lending rate and longer-term rates, is the SARB's primary policy instrument. The repo rate is thus the primary determinant of credit costs and, therefore, the SARB's primary tool for controlling inflation. Raising credit costs may cool down an overheating economy, lowering inflation. A higher repo rate makes borrowing more expensive, decreases consumption and investment spending, and makes aggregate demand and economic growth. As a result, a restrictive monetary policy position of a 'too high' repo rate – is usually criticized as negatively impacting economic growth.