ECS3701
ASSIGNMENT 2
DUE DATE: 17 APRIL 2026
, ECS3701 Assignment 2 2026
Due 17 April 2026
Source: Reserve Bank holds interest rates in South Africa
According to this excerpt, with the recent monetary policy stance on keeping the
repo rate unchanged, what effect will this have on the economy? Will
this monetary policy approach have a positive, negative, or neutral effect on
the economy? Explain your answer.
2.01 (i) Effect of keeping the repo rate unchanged
The SARB’s decision to keep the repo rate at 6.75% (prime lending rate at 10.25%)
represents a neutral monetary policy stance. In the short run, this has a neutral effect on
the economy: it does not directly stimulate or contract aggregate demand. By not raising
rates, the SARB avoids adding further borrowing costs to households and firms, which
could have reduced consumption and investment. At the same time, by not lowering
rates, it refrains from injecting additional liquidity that might fuel inflation, especially
given the rising global inflation expectations from Middle East tensions. The neutral
stance signals that the SARB is monitoring risks but believes current rates are
appropriate to keep inflation within the 3-6% target range. Thus, the effect is neither
clearly positive nor negative, it maintains stability while preserving the option to tighten
later if inflation pressures materialise.
(Mishkin (2016, ch. 5, pp. 107-111; ch. 16, pp. 366-370); Unisa Study Guide (2017, Learning Unit 14, p.
66 – SARB inflation targeting).
ASSIGNMENT 2
DUE DATE: 17 APRIL 2026
, ECS3701 Assignment 2 2026
Due 17 April 2026
Source: Reserve Bank holds interest rates in South Africa
According to this excerpt, with the recent monetary policy stance on keeping the
repo rate unchanged, what effect will this have on the economy? Will
this monetary policy approach have a positive, negative, or neutral effect on
the economy? Explain your answer.
2.01 (i) Effect of keeping the repo rate unchanged
The SARB’s decision to keep the repo rate at 6.75% (prime lending rate at 10.25%)
represents a neutral monetary policy stance. In the short run, this has a neutral effect on
the economy: it does not directly stimulate or contract aggregate demand. By not raising
rates, the SARB avoids adding further borrowing costs to households and firms, which
could have reduced consumption and investment. At the same time, by not lowering
rates, it refrains from injecting additional liquidity that might fuel inflation, especially
given the rising global inflation expectations from Middle East tensions. The neutral
stance signals that the SARB is monitoring risks but believes current rates are
appropriate to keep inflation within the 3-6% target range. Thus, the effect is neither
clearly positive nor negative, it maintains stability while preserving the option to tighten
later if inflation pressures materialise.
(Mishkin (2016, ch. 5, pp. 107-111; ch. 16, pp. 366-370); Unisa Study Guide (2017, Learning Unit 14, p.
66 – SARB inflation targeting).
