In South Africa the monetary policy is conducted by the South African Reserve

In south africa the monetary policy is conducted by

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is used as inflation is generally considered as purely a monetary phenomenon. In South Africa, the monetary policy is conducted by the South African Reserve Bank (SARB). Monetary policy influences economic growth through aggregate spending. Changes in money supply and interest rates influence consumer spending as well as investment decisions. Consequently, aggregate demand changes in response to monetary policy adjustments. Given the crucial role played by monetary policy in pursuit of a sustainable economic growth, this study therefore seeks to assess the impact of monetary policy on economic growth with reference to the South African economy for the period 2000-2010. The remainder of the paper is organised as follows. Section two gives a brief overview of the various monetary policy frameworks in South Africa since 1960s, section three reviews various related literatures, section four discusses the methodology, section five presents the data analysis and interpretation of findings and section six provides conclusion, and recommendations. 2. Monetary Policy Frameworks in South Africa In South Africa, the central bank has the authorization to conduct the monetary policy. Monetary policy frameworks have been continuously changing since the 1960s. Various frameworks have been adopted as weaknesses in one framework
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ISSN 2039-2117 (online) ISSN 2039-9340 (print) Mediterranean Journal of Social Sciences MCSER Publishing, Rome-Italy Vol 5 No 15 July 2014 77 led to the adoption of another framework. During the period of 1960 to 1981, the Reserve Bank focused on quantitatively controlling interest rate and credit using the liquid asset requirements (Aron and Muellbauer, 2006). Controlling the liquid asset requirements affects the commercial banks’ ability to create money as they are required to hold a certain amount of liquid assets as reserves. This will constrain the money supply in an economy, thereby controlling inflation. In the period 1981 to 1985, the De Kock Commission (1978) was appointed to evaluate the monetary policy framework, and they recommended the use of pre- announced monetary target range for a broad definition of money (M3) in South Africa. M3 money comprises of M2 plus large-denomination time deposits at all commercial banks; term repurchase agreements at commercial banks and saving and loan associations and institution only money market mutual fund balances (Mishkin, 2008). Following the recommendation by the De Kock Commission, the cost of cash reserves-based system with pre- announced monetary targets system was adapted from 1986 to 1998. The intention was to have control over the cost of cash reserves and the reserve bank controlled the discount rate. According to Casteleign (2003), the short term interest rate became the main monetary policy instrument during this period because of its influence on the cost of overnight lending and market interest rate thereby reducing the demand for credit. The eclectic approach was used from 1998 to 1999. It involved monitoring wide range of indicators, such as changes in the bank extension, overall liquidity in the
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