The Transmission of Monetary Policy Under the Repo System in South Africa: An Empirical Analysis

Abstract

The study examines the influence of the repo rate on the interbank rate and analyses whether the transmission channels of interest rates have changed since the adjustment to the repo system in September 2001. The paper employs the Granger causality test using the ECM framework. The results suggest that the influence of the repo rate on the interbank rate was stronger before the adjustments to the system were made. The interbank rate and the repo rate were found to "reverse" roles in the period after the adjustments to the system. Our results show that the changes to the repo system in 2001 did not lead to the achievement of the intended transmission channel; instead it was found that the system in place before the changes were made was in fact already achieving the transmission path that the authorities hoped to accomplish by changing the system. Copyright 2005 Economic Society of South Africa.

South African Market Volatility, Asymmetry and Retail Interest Rates Pass‐through

“…From the results, when comparing the results with other works, this study differs from most previous studies performed on South Africa, including Sander and Kleimeier (2006), De Angelis et al . (2005), Aziakpono (2006), Aziakpono et al .…”

“…The PT process generally differs among countries, such that retail rates rigidity in bank lending/deposit rates in any economy depends on the country's financial market structure, economic policy, the degree of financial market development, the level of competition within the banking system and the ownership structure of financial intermediaries (Agénor and Montiel, 2008:177). These factors and several others such as financial market openness, interest rate volatility and the financial market development have been suggested and supported by many authors such as Cottarelli and Kourelis (1994), Borio and Fritz (1995), Scholnick (1996), Mojon (2000), Lim (2001), Weth (2002), De Bondt (2002), Sander and Kleimeier (2004), De Angelis et al (2005, Aziakpono (2006), Aziakpono et al (2007a,b), Gambacorta (2008), Liu et al (2008), Wang and Lee (2009), Kwapil and Scharler (2009), Wang and Thi (2010) and Aziakpono and Wilson (2010). Understanding these factors and their influence is important because they may impact on the PT mechanism.…”

“…These authors explained different country‐specific PT strengths and determinants, and suggested that factors such as a country's financial structure, competition and concentration within the banking sector influence the PT mechanism. Several other studies that examined IRPT in South Africa and most Southern African Customs Union countries include those by De Angelis et al . (2005), Aziakpono (2006), Sander and Kleimeier (2006), Aziakpono et al .…”

Inflation Targeting and the Fisher Effect in South Africa: An Empirical Investigation

“…This is because verification of the Fisher effect suggests that nominal short-term interest rate movements are primarily caused by inflation expectations and are not due to changes in monetary policy. De Angelis et al (2005) explore the econometric link between the repo rate and three other money market interest rates for the period September 2001 and November 2004, and find that all three rates respond almost one-to-one to changes in the repo rate. The relationship is unity for the prime lending rate, 0.91 for the prime interbank rate and 0.99 for the 3-months NCD rate.…”

Interest Rate Transmission Effect on Money Supply: The Nigerian Experience

“…The reason for this may not be farfetched because interest rate policy has direct bearing on many other economic variables such as investment decision. Interest rates play a crucial role in the efficient allocation of resources aimed at facilitating growth and development of an economy and as a demand management technique for achieving both internal and external balance with specific attention for deposit mobilization and credit creation for enhanced economic development (De Angelis et al, 2005). The central objective of this study is to examine effect of interest rate on money supply in Nigeria with specific attention on the short and long run effects of minimum rediscount rate, commercial bank lending and savings rates.…”