ECS3701
Assignment 2 Semester 1 2024
Detailed Solutions, References & Explanations
Unique number: 833704
Due Date: 29 April 2024
2.1.
To decrease inflation resulting from the global increase due to the Russian invasion of
Ukraine, the South African Reserve Bank (SARB) can utilize three conventional monetary
policy tools: open-market operations, accommodation policy, and reserve requirements.
Open-market operations involve the SARB actively maintaining a liquidity requirement by
compelling banks to borrow from the SARB at the repo rate. The SARB constantly drains
excess liquidity from the market by estimating the banks' overall liquidity requirement on a
daily, weekly, and monthly basis. It offers various securities on auction at varying interest
rates, with the aim of forcing a liquidity shortage. The SARB also sells longer-term reverse
repos and conducts outright sales of securities to drain liquidity from the market.
Additionally, it uses foreign exchange swap transactions to temporarily drain rand liquidity
from the market. Another instrument used in open-market operations is the tax and loan
accounts of the government, held with private banks, which serve to alleviate large
fluctuations in liquidity. Terms of use
By making use of this document you agree to:
• Use this document as a guide for learning, comparison and reference purpose,
• Not to duplicate, reproduce and/or misrepresent the contents of this document as your own work,
• Fully accept the consequences should you plagiarise or misuse this document.
Disclaimer
Extreme care has been used to create this document, however the contents are provided “as is” without
any representations or warranties, express or implied. The author assumes no liability as a result of
reliance and use of the contents of this document. This document is to be used for comparison, research
and reference purposes ONLY. No part of this document may be reproduced, resold or transmitted in any
form or by any means.
Assignment 2 Semester 1 2024
Detailed Solutions, References & Explanations
Unique number: 833704
Due Date: 29 April 2024
2.1.
To decrease inflation resulting from the global increase due to the Russian invasion of
Ukraine, the South African Reserve Bank (SARB) can utilize three conventional monetary
policy tools: open-market operations, accommodation policy, and reserve requirements.
Open-market operations involve the SARB actively maintaining a liquidity requirement by
compelling banks to borrow from the SARB at the repo rate. The SARB constantly drains
excess liquidity from the market by estimating the banks' overall liquidity requirement on a
daily, weekly, and monthly basis. It offers various securities on auction at varying interest
rates, with the aim of forcing a liquidity shortage. The SARB also sells longer-term reverse
repos and conducts outright sales of securities to drain liquidity from the market.
Additionally, it uses foreign exchange swap transactions to temporarily drain rand liquidity
from the market. Another instrument used in open-market operations is the tax and loan
accounts of the government, held with private banks, which serve to alleviate large
fluctuations in liquidity. Terms of use
By making use of this document you agree to:
• Use this document as a guide for learning, comparison and reference purpose,
• Not to duplicate, reproduce and/or misrepresent the contents of this document as your own work,
• Fully accept the consequences should you plagiarise or misuse this document.
Disclaimer
Extreme care has been used to create this document, however the contents are provided “as is” without
any representations or warranties, express or implied. The author assumes no liability as a result of
reliance and use of the contents of this document. This document is to be used for comparison, research
and reference purposes ONLY. No part of this document may be reproduced, resold or transmitted in any
form or by any means.
