ECS3701
ASSIGNMENT 2 SEMESTER 1 2025
UNIQUE NO.
DUE DATE: 9 MAY 2025
, Question 1A: The Effect of the SARB’s Current Monetary Policy Stance on the
Economy
The South African Reserve Bank (SARB) has decided to maintain the repo rate at 7.5%,
following a previous series of rate reductions. This indicates a neutral to slightly
accommodative monetary policy stance.
The stance is considered neutral because the SARB is neither increasing nor
decreasing the interest rate further, suggesting a wait-and-see approach.
It is mildly supportive of economic activity because the previous 75 basis
point cut remains in effect, continuing to support consumer spending and private
investment.
This pause likely reflects SARB’s cautious outlook amid global economic
uncertainty, including concerns over inflation, geopolitical developments, and
volatile capital flows. By maintaining the current rate, the Bank aims to preserve
financial stability while allowing the lagged effects of earlier rate cuts to
permeate the economy.
Question 1B: Was the SARB’s Decision to Hold Rates Appropriate Given Trade
Tensions and Global Uncertainty?
Yes, the SARB’s decision to hold the repo rate steady was appropriate and well-
considered in the context of global economic instability and ongoing trade tensions.
This decision aligns with the logic of the monetary policy transmission mechanism,
which works as follows:
Lower interest rates reduce the cost of borrowing, encouraging higher levels of
consumer spending and business investment.
A weaker rand, often a result of rate cuts, can make South African exports more
competitive, potentially improving the trade balance.
These effects collectively stimulate aggregate demand, which may boost
economic growth (GDP) over time.
ASSIGNMENT 2 SEMESTER 1 2025
UNIQUE NO.
DUE DATE: 9 MAY 2025
, Question 1A: The Effect of the SARB’s Current Monetary Policy Stance on the
Economy
The South African Reserve Bank (SARB) has decided to maintain the repo rate at 7.5%,
following a previous series of rate reductions. This indicates a neutral to slightly
accommodative monetary policy stance.
The stance is considered neutral because the SARB is neither increasing nor
decreasing the interest rate further, suggesting a wait-and-see approach.
It is mildly supportive of economic activity because the previous 75 basis
point cut remains in effect, continuing to support consumer spending and private
investment.
This pause likely reflects SARB’s cautious outlook amid global economic
uncertainty, including concerns over inflation, geopolitical developments, and
volatile capital flows. By maintaining the current rate, the Bank aims to preserve
financial stability while allowing the lagged effects of earlier rate cuts to
permeate the economy.
Question 1B: Was the SARB’s Decision to Hold Rates Appropriate Given Trade
Tensions and Global Uncertainty?
Yes, the SARB’s decision to hold the repo rate steady was appropriate and well-
considered in the context of global economic instability and ongoing trade tensions.
This decision aligns with the logic of the monetary policy transmission mechanism,
which works as follows:
Lower interest rates reduce the cost of borrowing, encouraging higher levels of
consumer spending and business investment.
A weaker rand, often a result of rate cuts, can make South African exports more
competitive, potentially improving the trade balance.
These effects collectively stimulate aggregate demand, which may boost
economic growth (GDP) over time.
