The mandate of the South African Reserve Bank (SARB) is to protect the value of the currency, and we do it for a clear reason: to support balanced and sustainable growth. These are real economy considerations that firms and households can readily understand and support. At the same time, we pay a lot of attention to financial markets, as it is fundamentally through financial markets that policy is transmitted. After all, the SARB is a bank and our most important tool is the interest rate. In this light, I would like to talk to you today about how we look at financial markets in our monetary policy decision-making.
Let’s start with our interest rate. About midway through the second half of the 20th century, it was fashionable to make monetary policy using many different tools, such as rules for how much credit could be extended to different sectors, or what reserve requirements banks had to hold for different kinds of liabilities. This has been called the ‘Baroque age’ of monetary policy because of its complexity. This complexity made it difficult for everyone – even central bankers – to understand the true stance of monetary policy.