South Africa
South Africa[ZAR]
Institutional framework
As outlined in the Constitution of the Republic of South Africa (1996), the South African Reserve Bank's (SARB) primary objective is to protect the value of the currency in the interest of balanced and sustainable growth. Over the years, the SARB's mission statement has been revised, with a currently stated primary goal of 'achieving and maintaining price stability'. The price stability mandate is aligned to an inflation target band of 3% to 6% for consumer inflation. The achievement of this target is underpinned by the stability of the financial system and financial markets. For this reason, the SARB also has a mandate to actively promote financial stability.
The SARB performs its functions independently, although there is regular consultation between the Central Bank and the Ministry of Finance.
The SARB's Monetary Policy Committee (MPC) is responsible for formulating monetary policy to meet the SARB's price stability objective. The MPC meets at least 6 times per year, with meetings held over three days. Decisions are taken by consensus and the Governor delivers a press statement at a televised press conference, which includes a question-and-answer session with journalists. The SARB also holds post-MPC meetings with domestic and international investors and analysts. The SARB's Financial Markets Department implements the interest rate policy as determined by the MPC. The key features are described below.
Key features of the implementation framework
The SARB operates a classical cash reserve system, whereby a money market shortage is created by levying a cash reserve requirement on banks. The shortage is also influenced by the amount of notes and coin in circulation. Bank refinance the shortage at the SARB through weekly repo auctions. These auctions are conducted every Wednesday and have a maturity of seven days at the prevailing repo rate as determined by the MPC. During the MPC rate decision week, the main repo auction will be conducted for two days (maturing on a Friday) and then again for five days (maturing on the next Wednesday). The SARB does not provide unsecured loans and therefore participating banks have to provide eligible collateral as security for the funds received.
In order to effectively manage liquidity within the system, the Financial Markets Department calculates the liquidity requirement of the market on a daily basis. The liquidity requirement is calculated by taking all the factors into consideration that either expand or contract liquidity in the market. The main factors included in the daily liquidity calculations include government expenditure; level of notes and coin in circulation; cash reserves (CRA), foreign exchange transactions; deposits and withdrawals into and out of the Corporation for Public Deposits (CPD) 1; maturing main repos; supplementary and standing facility reverse/repos; settlement position in the real-time gross settlement system and other ad-hoc payments and receipts. Based on the liquidity position the SARB utilises open market operations to steer the shortage to a level deemed appropriate for effective policy transmission to market rates and, therefore, bank rates. Where the market is considered to be in excess, the SARB makes use of various sterilization operations such as FX swaps, debentures, long-term reverse repo and the CPD to drain liquidity. Similarly, when the market is short, the SARB would inject liquidity, mainly through FX swaps and the CPD.
The SARB also conducts supplementary repo and reverse repo auctions to ensure the liquidity position of the market is neutral at the end of day. Supplementary repos auctions are offered to commercial banks that are short cash, while reverse repos are offered when commercial banks are long cash. Supplementary auctions are conducted at the discretion of the SARB and are issued on an overnight basis at the prevailing repo rate, in contrast to the main 7-day repo.
Lastly, the SARB also has standing facilities (SF) which are an automatic a square-off facility. A SF reverse repo is available when a bank is long, in which case the SARB pays interest on the cash it absorbs on an overnight basis. Square-off facilities, as with the supplementary repo and reverse repo auctions, mature on the next working day. Unlike supplementary tenders, the standing facilities are conducted at penalty rates, with the purpose of encouraging interbank cash placements as a first option for banks. The penalty rate is 100 basis points above (SF repo) or below (SF reverse repo) the prevailing repo rate, creating a so-called interest rate corridor 2. The SF repo rate is the ceiling and the SF reverse repo rate the floor within which short-term money market rates should fluctuate. SFs provide a pivotal role in providing market liquidity in a situation where banks are unable to fund/square-off their liquidity positions in the interbank market or in the daily liquidity operations of the central bank if and when interventions are required to influence market rates.
Other operations
In response to the Covid-19 crisis, the SARB introduced several measures to inject liquidity into the market. These included an intra-day supplementary repo auction, as well as a long-term repo of up to 12 months. These instruments have since been discontinued as of December 2020 and March 2021 respectively, following a gradual return to normal money market conditions.
1
The Corporation for Public Deposits (CPD) is a wholly owned subsidiary of the SARB, governed by the CPD Act 46 of 1984. The SARB can transfer CPD funds into the CPD call deposit account with the SARB to drain liquidity and vice versa.
2
During the height of the Covid-19 crisis, the rates on the SF repo was reduced to repo, while the SF reserve repo rate was adjusted to repo less 200 basis points.
Institutional setup of monetary policy decisions and operations
| Policy decision body, size and composition | The Monetary Policy Committee (MPC) is an internal committee of the SARB. It currently consists of five members (the Governor, the three Deputy Governors and the Head of the Economic Research Department). It can accommodate up to seven members. |
|---|---|
| Major mandates 1 | As per the Constitution of the Republic of South Africa, the primary object of the SARB is to protect the value of the currency in the interest of balanced and sustainable growth. The inflation target range (3-6%) is set jointly between National Treasury and SARB. The SARB performs its functions independently. |
| Decision-making process | The MPC meets over a period of three days during each of their six scheduled meetings in the year. The first day is devoted to presentations by staff and discussions of those presentations. The presentations cover the following areas: global economic developments, domestic economic conjuncture, financial market developments and economic forecasts. The remaining two days are devoted to deliberations among the MPC members, decision on the repo stance and the announcement of the decision. The MPC does not publish minutes of their deliberations. |
| Frequency / length of meetings | Each meeting lasts three days and is conducted every two months, according to a calendar published once a year, though interim / emergency meetings can take place if circumstances require. |
| Frequency of announcements | The Governor will deliver a press statement on the afternoon of the third day, after each meeting. |
| Main policy target | The main goal is to keep the headline inflation rate (year-on-year change in the urban consumer price index) within the 3-6% target range. The SARB prefers to see inflation converge towards the midpoint of that target. |
Overview of key features
| Key policy rate | repo rate |
|---|---|
| maturity (days) | |
| Operating target | |
| maturity (days) | |
| Standing facilities | End of day standing facilities for squaring the market |
| Corridor width (bp) | Repo plus and minus 100 bps |
| Reserve requirements | 2.5% of liabilities |
| maintenance period | Typically 21 days (Between mid-month to mid-month) |
| Main operation 2 | The MPIF has moved from a shortage to a surplus system with quotas. A 7 day weekly repo is still offered, albeit on a much smaller scale. |
| functions | To cover money market liquidity requirements |
| maturity (days) | 7 days |
| regular interval | Yes |
| frequency | weekly |
| Overall frequency | weekly |
| Discretion left to operational desk | no |
| Key policy signals via | |
| announcement | |
| keynote tender | |
| standing facility | |
| other | MPC rate decision |
Monetary policy communication
| Explicit use of forward guidance | No such use at present, though the SARB publishes the endogenous policy rate projection from its Quarterly Projection Model, conditional on a set of assumptions. |
|---|---|
| Timing / media of policy announcement | The MPC statement is read at a press conference at 15.00 SA time on the afternoon of the third day of the meeting. It is subsequently published on the SARB website and distributed via other social media platforms. |
| Policy announcement and documents | Together with its policy statement, the SARB publishes: (1) the key elements of its economic forecast; (2) the key assumptions underlying the forecast; and (3) a fan chart illustrating probabilities of different policy rate paths. |
| Explaining policy decisions | In addition to the press conference, and engagements with spectific stakeholders, the rationale for the policy stance is explained in the Monetary Policy Review, published twice a year. |
| Dissemination of minutes (timing / media) | The SARB does not publish minutes of the MPC discussions. |
| Content of minutes | |
| Publication of forecasts 3 | The SARB publishes quarterly projections for headline and core inflation, and annual forecasts for real GDP growth, the output gap, the effective exchange rate (and rate gap), the policy rate and the current account - up to a horizon of three years maximum |
| Publication of projected path of policy rate 4 | A fan chart of policy rate projection is published with each MPC statement. In addition, the MPR provides fan charts of growth and inflation projections. |
Reserve requirements: ratios and size
| Main functions served | Cash reserves have never been actiely used as a tool for the management of money market liquidity. They are a source of liquidity should a bank be in distress. |
|---|---|
| Domestic currency | Reserves are only kept in domestic currency. |
| Foreign currency | Reserves are not kept in foreign currency. |
| Average | Banks are required to meet the requirement on a average daily basis for the holding period. |
| Required reserves | R132 048 million (31/07/2022) |
| Required reserve as % of GDP | 2.86% 5 |
| Actual reserves | R132 048 million (31/07/2022) |
| Actual reserve as % of GDP | 2.86% 6 |
Main features of reserve requirements
| Averaging | The requirement is met on a daily average basis over the required holding period. |
|---|---|
| Carry-over | There is no carry over, for each holding perriod a new requirment is calculated that has to be met. |
| Type | |
| Maintenance period | The maintenance period spans from the 15th business day following month end to the 14th business day of the following month end. |
| end (day) | There is no formal requirement to comply on a daily basis, compliance is met on a daily average basis for the holding period. |
| Calculation period | The calculation period and the maitenance period are the same. |
| end (day) | |
| Lag before maintenance | No time lag. |
| Vault cash | Vault cash is not allowed to be taken into account. |
| restrictions | |
| Remuneration | No remuneration on the statutory cash reserve accounts. |
| average rate | |
| marginal rate | |
| Framework last changed | April 1998 |
Liquidity position and forecasting
| Structural Position | The SARB is moving from a shortage system to a surplus system, with quotas. At the end of the transition period, a surplus of R50 bln will be created. Each bank has a quota which amounts will earn the repo rate. Anything in excess of quota will earn the repo rate less 100 bps. |
|---|---|
| Most volatile factor(s) | notes and coin and Corporation for Public Deposits (CPD) |
| Most unpredictable factor(s) | Notes & Coin and CPD |
| Forecast horizon(s) | week |
| Frequency | weekly |
| Frequency of revision | daily |
| Forecast published? | no |
Standing facilities: lending / market ceiling
| Name | Standing facility repo |
|---|---|
| Form | automatic end of day square off facility |
| Pricing method | Offered at repo plus 100 bps |
| Maturity | overnight |
| Access limited by/to | clearing banks |
| Function(s) | manage liquidity at end of day and square market |
Standing facilities: deposit / market floor
| Name | Standing facility reverse repo |
|---|---|
| Form | automatic end of day square off facility |
| Pricing method | repo less 100 bps |
| Maturity | overnight |
| Access limited by/to | clearing banks |
| Function(s) | to drain liqudity and square market at end of day |
Open market operations: repo or reverse repo
| Name/Type 7 | Main repo (7 days); Supplementary Repo and reverse repos (overnight) at discretion of SARB in response to liquidity shocks |
|---|---|
| Maturity | 7 days / overnight |
| Frequency | weekly/ at discretion of sarb |
| Pricing method | repo rate |
| Access limited by/to | clearing banks |
| Function(s) | ensure sufficient liquidity / manage end of day liquidity |
Open market operations: central bank bills
| Name | N/A SARB debentures have been discontinued under the new monetary policy implementation framework |
|---|---|
| Total issuance | |
| Maturity | |
| Restrictions on possible maturities | |
| Pricing method | |
| Access limited by/to | |
| Discretion left to operational desk |
Open market operations: FX swaps
| Maturity | Fluctuates but typically up to 12 months |
|---|---|
| Frequency | No set frequency - determined by market liquidity conditions |
| Pricing method | market determined |
| Access limited by/to | authorised dealers |
| Function(s) | management of liquidity and sterilisation |
Other significant liquidity management means
| Name/Type 8 | CPD call account with the SARB |
|---|---|
| Form | |
| Frequency | daily |
| Maturity | call |
| Pricing Method | repo rate plus 25bps |
| Access limited by/to | |
| Function(s) | to manage liquidity |
Settlement systems and intra-day liquidity facilities
| Settlement system | SAMOS |
|---|---|
| Intra-day liquidity facility | CBMS |
| Charge | |
| Foreign currency settlement system | Calypso |
| CLS participation by banks | |
| Other settlement system(s) |
Collateral
| Standing facilities: List of eligible collateral | government paper (SAGBs; TBs and FRNs) and SARB debentures (debentures no longer issued) |
|---|---|
| Standing facilities: Discretion of central bank on collateral 9 | |
| Open market operations: List of eligible collateral | government paper (SAGBs; TBs and FRNs) and SARB debentures (debentures no longer issued) |
| Open market operations: Discretion of central bank on collateral 10 |
Dissemination of operational information: liquidity forecast
| Forecast published? | No |
|---|---|
| Channel(s) | |
| Timing | |
| Remarks | SARB publishes liquidity target for week at the weekly repo operation |
Dissemination of operational information: open market operations
| Volume and price published? | Yes |
|---|---|
| Channel(s) | Bloomberg; Reuters; SARB website |
| Timing | Daily |
Dissemination of operational information: standing facilities
| Lending facility usage: Channel(s) | |
|---|---|
| Lending facility usage: Timing | |
| Deposit facility usage: Channel(s) | |
| Deposit facility usage: Timing |
Other information dissemination
| Type | FX swaps activity may be discernible from the monthly release of gold and foreign exchange reserves as the Forward position is reflected in this release |
|---|---|
| Channel(s) | SARB website |
| Timing | Monthly |
1 Describe as well the legal status of the mandate and involvement of government
2 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).
3 For instance, economic and inflation forecasts related to policy decision.
4 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.
5 Based on Q1 2022 GDP of R4 612 502 million
6 Based on Q1 2022 GDP of R4 612 502 million
7 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).
8 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.
9 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
10 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.