, PLEASE USE THIS DOCUMENT AS A GUIDE TO ANSWER YOUR ASSIGNMENT
Question 1
1. Read the following excerpt from News24 below and answer the questions that follow.
The inflation and inflation expectation is better today; we lowered borrowing costs and this will
support economic activity. However, risks to domestic inflation and growth have risen markedly since
the start of the year,” Kganyago said.
The South African Reserve Bank kept the key interest rate unchanged at 7.5% last month after three
successive 25 basis point cuts because of the extreme levels of uncertainty as trade tensions escalate.
“With the recent softening in inflation, the Sarb has cut interest rates by a cumulative 75 basis points
since September 2024, reducing the degree of policy restrictiveness,” the central bank said in a
statement on X. “Given the upside risks over the medium-term horizon, the current monetary policy
stance is deemed appropriate.”
Source: Uncertainty risks higher rates, says Reserve Bank
A) 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 a more neutral effect on the economy? Explain your answer.
The South African Reserve Bank’s decision to keep the repo rate unchanged at 7.5% is likely to have
a neutral to slightly positive effect on the economy. This monetary policy stance aims to maintain
stability in the face of increasing risks to inflation and economic growth.
Firstly, by not raising the repo rate, the central bank avoids placing additional pressure on borrowers,
which helps sustain current levels of consumer and business spending. Secondly, the unchanged rate
follows a series of recent interest rate cuts totaling 75 basis points, meaning that the economy is still
benefiting from previously reduced borrowing costs. Thirdly, maintaining the current rate helps
manage inflation expectations, ensuring they remain stable without triggering excessive price
increases. Fourthly, the decision reflects a cautious approach in response to heightened uncertainty
and global trade tensions, allowing the Reserve Bank to assess future developments before taking
further action. Lastly, this steady stance sends a signal of policy consistency and confidence, which
can help reassure investors and support overall economic sentiment.
Question 1
1. Read the following excerpt from News24 below and answer the questions that follow.
The inflation and inflation expectation is better today; we lowered borrowing costs and this will
support economic activity. However, risks to domestic inflation and growth have risen markedly since
the start of the year,” Kganyago said.
The South African Reserve Bank kept the key interest rate unchanged at 7.5% last month after three
successive 25 basis point cuts because of the extreme levels of uncertainty as trade tensions escalate.
“With the recent softening in inflation, the Sarb has cut interest rates by a cumulative 75 basis points
since September 2024, reducing the degree of policy restrictiveness,” the central bank said in a
statement on X. “Given the upside risks over the medium-term horizon, the current monetary policy
stance is deemed appropriate.”
Source: Uncertainty risks higher rates, says Reserve Bank
A) 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 a more neutral effect on the economy? Explain your answer.
The South African Reserve Bank’s decision to keep the repo rate unchanged at 7.5% is likely to have
a neutral to slightly positive effect on the economy. This monetary policy stance aims to maintain
stability in the face of increasing risks to inflation and economic growth.
Firstly, by not raising the repo rate, the central bank avoids placing additional pressure on borrowers,
which helps sustain current levels of consumer and business spending. Secondly, the unchanged rate
follows a series of recent interest rate cuts totaling 75 basis points, meaning that the economy is still
benefiting from previously reduced borrowing costs. Thirdly, maintaining the current rate helps
manage inflation expectations, ensuring they remain stable without triggering excessive price
increases. Fourthly, the decision reflects a cautious approach in response to heightened uncertainty
and global trade tensions, allowing the Reserve Bank to assess future developments before taking
further action. Lastly, this steady stance sends a signal of policy consistency and confidence, which
can help reassure investors and support overall economic sentiment.
