MACROECONOMICS Table 1 below (attached) is an extract from the Monetary Policy Committee (MPC) statement by the South African Reserve Bank of 20 March 2020. It summarizes quarterly estimates and...

Q1.
Money is a financial asset that is universally accepted as a means of payment in transactions and settlement of debt. It represents general purchasing power in the most liquid form, in the sense that it does not need to be converted into something else before it can be used for transactions. Without money ,exchange will be extremely inconvenient and limited form of barter exchange of goods and services for other goods and services.
The policy rates to bank lending rates, it is an important matter of discussion because it measures the effectiveness of the monetary policy which controls inflation or in simple words stabilizes the economy. The monetary transmission mechanism is the key to the policy rate to which it can be embedded. The speed of the rate is usually taken as an indication of the effectiveness of the monetary policy.
The monetary policy has the following targets:
1. High and stable employment
2. Economic growth
3. Price stability
4. Financial stability
5. Stability in the foreign exchange market
And , following are the instruments of the monetary policy:
1. Variation in CRR.
2. Variation in bank rate .
3. Open market operations.
Here we analyse the repurchase rate or the repo rate, its effects , impacts and current decisions made by the monetary policy committee of South Africa and what impact does it have on the economy.
The re-purchase rate or the repo rate, the central bank of the country buys securities from the banks under a contract that specifies a date and a price for their resale to banks. Under reserve repo rate , the banks sells financial instruments so banks under a contract that specifies a date and a price for buying them back. The contract period is short, usually ranging from one to thirty days. The buying and selling prices determines the bank’s short term lending rate or borrowing rate. securities are transferred only temporarily and there is no link between the maturity period of these securities and that of the transactions.
The chief advantages of repo rate agreements are:
1. These are very flexible instruments of short term reserve management.
2. They do not require developed markets for securities.
Under this process of financial liberalization they are now widely used by all countries. The global pandemic is the largest crisis happening around the world since the bankruptcy of Lehman Brothers in 2008. The South African Reserve Bank found that the inflation rate was under 4.5% this year. The Monetary policy was issued to lower the repo-rate. In 2019, the inflation rate was low at 4.1%. In January the inflation rate was 4.5% and 4.6% for February. The most recent MPC forecasts show inflation in the bottom half of the target range is averaging...