At the start of June, the South African Reserve Bank (SARB) commenced its 12‑week transition to a new monetary policy implementation framework.
The amendments to the framework are largely technical in nature and are set to change how monetary policy is implemented in South Africa, say legal experts at Werkmsnas.
This ensured that there was a shortage of cash reserves in the market and that a limited amount of cash reserves were available to commercial banks. “We understand that the scarce-reserve framework worked relatively well in South Africa up until the director-general of the World Health Organisation characterised Covid-19 as a pandemic on 11 March 2020 and South Africa declared the outbreak of Covid-19 in South Africa a national disaster,” Werksmans said.
On investigation, the SARB determined that South Africa’s structural liquidity surplus had built up over time resulting in the scarce-reserve framework being ‘difficult and costly to operate’ and that the ‘tiered-floor’ system would be a better and more cost-efficient, monetary policy implementation framework for South Africa.
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