A Review of the Central Bank Balance Sheet Tools That Can Be Deployed to Assist in the Achievement of Price, Financial and Macro-economic Stability

This chapter presents a preliminary review of the central bank balance sheet tools that can be deployed to assist in the achievement of price, financial and macro-economic stability in South Africa. The chapter discusses the key channels through which large-scale asset purchases (quantitative easing) are transmitted and whether the size, duration and composition of central bank asset purchases matter. We provide vast literature review of (i) when are the right conditions for the central bank to pursue large-scale asset purchases and (ii) whether quantitative easing (QE) is only effective at the zero-lower bound. This chapter discusses the motivation as to why the South African Reserve Bank (SARB) must conduct QE beyond the COVID-19 pandemic period, increase the pace at which it accumulates foreign currency reserves, lengthen the repurchase agreements maturities, adopt the excess reserves tiering approach and an interest rate corridor floor that allows the central bank to separate the monetary policy stance from the liquidity management policy. In addition, the analysis in the book assesses whether the Public Investment Corporation balance sheet can be used alongside the SARB balance sheet to achieve the national objectives of price, financial and macro-economic stability.