Introduction

This book explores the macro-financial effects of monetary policy, financial regulation and macro-prudential tools, and the role that the central bank balance sheet can play in achieving the objectives of price stability, financial stability and macro-economic stability in South Africa. Because these policy instruments interact, there may be spill-over effects to the fiscal policy variables which can assist in achieving or improving fiscal sustainability. Hence the possibilities of the spillovers are also explored in this book. After the global financial crisis, central bank balance sheets have become complementary monetary policy tools which are used to reinforce the effects of conventional monetary policy tools. We explore the role of the central bank balance sheet in South Africa considering the arguments and recommendations put forward in Gumata and Ndou (2019) to operationalise the 2030 goals of the National Development Plan (NDP). The authors stated that policy co-ordination becomes pertinent and binding to implement economic reforms, and this may lead to positive and better policy outcomes. Furthermore, the authors argued that in operationalising the goals of the NDP, it may be necessary for the central bank to expand its mandate to include maximum employment as an objective. A pertinent question that arose in their analysis was that the repo rate (monetary policy rate) alone is an insufficient instrument to simultaneously achieve an expanded mandate and a lower inflation target. This book offers the empirical analysis that answers this question and many other important questions relating to the co-ordination of policies in pursuit of price, financial and macro-economic stability. The book strengthens the arguments in academic and policy discussions regarding the use of the central bank balance sheet in its entirety by presenting the theoretical perspectives and empirical analysis.