Rashad Cassim: South Africa's new system for implementing monetary policy

Keynote address by Mr Rashad Cassim, Deputy Governor of the South African Reserve Bank, at the CFA Society South Africa and Investec Breakfast Conversation, Pretoria, 10 May 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

For most of my career at the SARB, as a member of the monetary policy committee, I have worked on interest rate decisions. But only recently have I taken on the financial markets portfolio, and with it oversight of how monetary policy is implemented, so that interest rates transmit to the economy.

As it happens, this has been an interesting time to make that shift, because we have been making big changes to our monetary policy implementation framework.

I would therefore like to centre this speech on monetary policy implementation. Later we can discuss the outlook for the economy, and the challenges facing monetary policy. But I hope it will be interesting for all of you as I reflect on the underlying plumbing of monetary policy, including the role of our balance sheet, the monetary base and money creation, and the payments system.

The main aim of monetary policy implementation in South Africa, as in many other economies, is to keep short-term market rates close to the policy rate chosen by the MPC. What we are really doing is setting the return on the safest and most liquid rand asset – the yield on money – which our relatively large and sophisticated financial markets then factor into other asset prices, taking into account their different risk and liquidity characteristics. In this way, our control of a relatively small asset class allows us to have significant effects on much larger financial markets, and ultimately influence the real economy.