Answer to Question #249515 in Finance for Matome

Question

QUESTION 1:

 (25 MARKS)

As the economies of the whole world grow more interdependent, a country’s monetary policy can no 

longer be conducted without taking international considerations into account.

Using practical examples, discuss how the South African central bank’s Monetary Policy Committee

(MPC) may use the following alternative monetary policy strategies.

i.

Capital controls.

 (10)

ii.

Exchange targeting

Answer 1

i.Capital controls.

The Federal Council of South Africa is in charge of implementing the country's monetary strategy and controlling the supply of currency through affecting its value. The Reserve Bank's fiscal policy council sets currency policy, working within a dynamic inflation-targeting context.

ii.Exchange targeting

Policy is more accessible when swap targets are set. They make the national bank's aims clear in a way that should help the private sector plan better. Finally, inflation aim aids monetary policy efficiency and increases the federal bank's credibility.