Ques on 2.01(a)
The South African Reserve Bank’s (SARB) decision to hold the repo rate steady at 7.5% reflects a
cau ous balancing act. A er three rate cuts in late 2024, the SARB seems to be hi ng pause to
assess the effects of previous easing. By keeping rates unchanged, they’re avoiding
overs mula ng the economy, which could push infla on higher, especially with global trade
tensions crea ng uncertainty (SARB, 2024).
, Think of it like easing off the accelerator rather than slamming the brakes—it gives exis ng rate
cuts me to work through the system. For ordinary South Africans, this might mean stable loan
repayments for now, but businesses could feel the pinch if borrowing costs don’t drop further.
The SARB’s stance here is like walking a ghtrope: trying to support growth without le ng
infla on slip out of hand (Mboweni, 2020).
This neutral stance allows the previous monetary easing to con nue working through the
economy while protec ng against poten al "upside risks over the medium-term horizon" (SARB,
2025) that could threaten price stability.
Ques on 2.01(b)
The SARB’s choice to halt rate cuts makes sense when you consider South Africa’s vulnerability
to global shocks. Earlier cuts in 2024 lowered interest rates on loans, making it cheaper for
businesses to expand and households to spend—this should, in theory, boost economic ac vity
(Mishkin, 2019). But there’s a catch: lower rates can weaken the rand, as foreign investors chase
be er returns elsewhere.
A weaker rand drives up prices for imported goods like fuel and electronics, which hits
consumers’ pockets. With trade tensions simmering—like those between China and the US
affec ng our mining exports—the SARB is wisely avoiding further cuts that could destabilise the
currency (Gumata & Kabundi, 2021). By holding rates, they’re giving previous cuts me to work
while shielding the economy from imported infla on. It’s a classic case of “wait and see” in a
vola le world.
Ques on 2.02
A nominal anchor is like a lighthouse for monetary policy—it guides decisions and keeps
infla on expecta ons steady. The SARB, for instance, uses an infla on target (3–6%) as its
anchor. Here’s why this ma ers:
1Taming Infla on Expecta ons: When people trust the SARB to hit its target, they’re less likely
to demand higher wages or prices pre-emp vely. This prevents infla on spirals, like the ones we
saw in the 1980s (Mohr, 2020).
2. Stopping Flip-Flop Policies: Without a clear anchor, policymakers might chase short-term
growth by cu ng rates, only to face runaway infla on later. A credible nominal anchor
constrains discre onary monetary policy by crea ng accountability and transparency around
The South African Reserve Bank’s (SARB) decision to hold the repo rate steady at 7.5% reflects a
cau ous balancing act. A er three rate cuts in late 2024, the SARB seems to be hi ng pause to
assess the effects of previous easing. By keeping rates unchanged, they’re avoiding
overs mula ng the economy, which could push infla on higher, especially with global trade
tensions crea ng uncertainty (SARB, 2024).
, Think of it like easing off the accelerator rather than slamming the brakes—it gives exis ng rate
cuts me to work through the system. For ordinary South Africans, this might mean stable loan
repayments for now, but businesses could feel the pinch if borrowing costs don’t drop further.
The SARB’s stance here is like walking a ghtrope: trying to support growth without le ng
infla on slip out of hand (Mboweni, 2020).
This neutral stance allows the previous monetary easing to con nue working through the
economy while protec ng against poten al "upside risks over the medium-term horizon" (SARB,
2025) that could threaten price stability.
Ques on 2.01(b)
The SARB’s choice to halt rate cuts makes sense when you consider South Africa’s vulnerability
to global shocks. Earlier cuts in 2024 lowered interest rates on loans, making it cheaper for
businesses to expand and households to spend—this should, in theory, boost economic ac vity
(Mishkin, 2019). But there’s a catch: lower rates can weaken the rand, as foreign investors chase
be er returns elsewhere.
A weaker rand drives up prices for imported goods like fuel and electronics, which hits
consumers’ pockets. With trade tensions simmering—like those between China and the US
affec ng our mining exports—the SARB is wisely avoiding further cuts that could destabilise the
currency (Gumata & Kabundi, 2021). By holding rates, they’re giving previous cuts me to work
while shielding the economy from imported infla on. It’s a classic case of “wait and see” in a
vola le world.
Ques on 2.02
A nominal anchor is like a lighthouse for monetary policy—it guides decisions and keeps
infla on expecta ons steady. The SARB, for instance, uses an infla on target (3–6%) as its
anchor. Here’s why this ma ers:
1Taming Infla on Expecta ons: When people trust the SARB to hit its target, they’re less likely
to demand higher wages or prices pre-emp vely. This prevents infla on spirals, like the ones we
saw in the 1980s (Mohr, 2020).
2. Stopping Flip-Flop Policies: Without a clear anchor, policymakers might chase short-term
growth by cu ng rates, only to face runaway infla on later. A credible nominal anchor
constrains discre onary monetary policy by crea ng accountability and transparency around
