Answer to Question #319883 in Macroeconomics for Nomhle

Question

Monetary policy will remain accomodative. Explain how the Repo system is used by the SARB as an accommodative policy approach.

Answer 1

Accommodative monetary policy is when central banks expand the money supply to boost the economy. Monetary policies that are considered accommodative include lowering the Federal funds rate. These measures are meant to make money less expensive to borrow and encourage more spending. Therefore, the repo rate is so called because banks give the SARB an asset, such as a Government bond, in exchange for cash. They can later repurchase that asset at a lower price, which reflects the interest they paid to have the cash.