South Africa Monetary Policy: Growth, Inflation, Unemployment & More - Essay Sample

Introduction

Monetary policy in South Africa has been used to enable the government to achieve price stability and economic development. The various aspects that have been influenced by the monetary policy in South Africa are growth rate, inflation rate, unemployment rate, population, and geographical/demographical characteristics.

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Growth Rate

The economic data that has been presented from 2008 to 2018 shows that the growth rate has increased. For instance, the GDP growth for South Africa was 0.8%, while in 2008 the GDP growth rate was 3.2% (Makaringe and Khobai 2018). Correspondingly, South Africa experienced a financial crisis in the third quarter of 2008 and the government focused on repurchase rate as a way of achieving economy adjustment (Bassier and Woolard 2018). The diagram below shows that South Africa has experienced economic growth.

Diagram 1

Inflation Rate

The inflation rate has also been influenced by monetary policy, whereby the country has recorded a decrease and an increase in the annual inflation rate in some years. For instance, the inflation rate for South Africa in 2018 was 4.6%, while in the year 2008 the inflation percentage change was 11% (Naraidoo and Gupta 2010). The diagram below shows how the inflation rate for South Africa has changed for the past years.

Diagram 2

Unemployment Rate

The unemployment rate in South Africa has been one of the major concerns for decades. Similarly, the lack of employment has negatively affected the economy of South Africa (Evans 2019, p.14). Monetary policy has been effective and one of the policies that have helped the county to create employment. However, there has been an increase in the rate of unemployment from 2008 to 2017 (Bassier and Woolard 2018). The statistics in the diagram below shows that the country has created employment for the past years.

Diagram 3

Population

Population growth has affected the economy of many countries, which has led to governments designing strategies that will ensure that economic growth is achieved (Percival, and Homer-Dixon 2018). The diagram below represents the population growth for South Africa from 2009 to 2019

Diagram 4

Demographic Characteristics

South Africa comprises of a diverse population, whereby black Africans, colored, white, and Asians are the major populations in the country. Black Africans are the highest population which consists of 80.9% while the colored and white population represents 8.8% and 7.8% respectively (Hall and Sambu 2018). The religions available in South Africa are mainly Christians, traditional African religions, and Muslims.

Analysis of Monetary Policy in South Africa

Monetary policy in South Africa has been implemented to ensure that the government curbs economic challenges that are being steered by the increasing population. For instance, the Monetary Policy Committee (MPC) has ensured that the South African Reserve Bank (SARB) can control the pricing in the country (Nazlioglu, Gormus, and Soytas 2019, p.117). Also, SARB ensured that it implemented changes in the policy in the year 2000 that was known as a Flexible Inflation Targeting (IT). The changes had positive impacts on the economy of South Africa, whereby the stance was essential during the global financial crisis in 2009. Also, applying Natural Language Processing techniques to the SARB monetary statements as a way of ensuring that the monetary policy focused on balanced communication. Typically, price stability is one of the ways to ensure that uncertainty in economic growth is reduced (Kabundi and Mlachila 2019). Money supply has also been controlled by SARB, whereby it ensures that money printed does not harm the economy of the country. The following diagram represents the money market diagram and AS-AD diagram.

Diagram 4

Based on the information in the above diagram, it is clear that adjustments in the monetary policy have an impact on the GDP of South Africa. The diagram has illustrated the pattern of the economic growth of South Africa for over three years. The long-term and short-term changes in gross product and GDP have been examined using the AD/AS model and monetary policy changes have been of great significance to the development and growth of South Africa.

Comparison of Policies Implemented in Vietnam and South Africa

The monetary policy in Vietnam was implemented to ensure that the company shifted from a centrally planned to a market economy. Also, the economic and political reforms that were launched in 1986 have greatly helped the country to transform (Tran, Mai, Le, Bui, Nguyen, and Huynh, 2019, p.72). Similarly, Vietnam has been experiencing rapid demographic changes, which has been steered by changes in the monetary policy. Also, South Africa has implemented changes in demographics and economic growth due to changes in the monetary policy. Vietnam has also implemented comprehensive financial sector reforms to ensure that it limits its economic crisis. The reforms entailed transition from a mono-bank to a two-tier banking system.

Inflation Rate for South Africa

The inflation rate has also been influenced by monetary policy, whereby the country has recorded a decrease and an increase in the annual inflation rate in some years. For instance, the inflation rate for South Africa in 2018 was 4.6%, while in the year 2008 the inflation percentage change was 11% (Naraidoo and Gupta 2010). The diagram below shows how the inflation rate for South Africa has changed for the past years.

Diagram 5

The highest decline was experienced in 2004. On the other hand, inflation peaked in 1988. Based on the above diagram, the highest peak between 2008 and 2018 was in the year 2009, while the lowest peak was in the year 2011. The fiscal policy implementations that were implemented in the year 2018 were that the government could spend more and borrow more so in the health and education sectors.

Purchasing Power Parity (PPP)

Using the formula S=p1/p2

Whereby, S= Exchange rate of currency 1 to currency 2

P1 = Cost of good X in currency 1

P2 = Cost of good X in currency 2

And 1 South African Rand = 1,621.95 Vietnamese Dollars.

1 unit of iPhone 11 Pro (64 GB) in Vietnam costs VND 21.9 million, which is equivalent to 947.82 USD, while in South Africa it costs R14, 999, which is equivalent to 1,049.04 USD. Therefore, the phone will be cheaper in Vietnam compared to South Africa due to the differences in exchange rates.

The price of one Louis Vuitton Speedy 35 bag in south Africa is R 1400 ( 582.499 USD), while in Vietnam it costs VND 11.5 million which is equivalent to 500USD. Therefore, the price of the bag is cheap in Vietnam compared to South Africa due to differences in the exchange rate.

One regular can of Coca-Cola of can in South Africa is R 355(23.63USD), while in Vietnam it costs VND579,312 (25USD), which shows that the exchange the cost of a can is expensive in Vietnam than in South Africa making the PPP hold false.

One McDonald's Big Mac in South Africa costs R57.19(USD), while in Vietnam it costs, VND 90,141 (3.89 USD), which shows that it costs more in South Africa with 0.11 USD, therefore, the PPP holds true.

One pair of Levi's 501 jeans in South Africa costs R737 (51.55USD), while in Vietnam it costs NVD 1.158 million (50 USD). The difference in the cost of the jeans has also been steered by the differences in exchange rates. Also, the PPP holds true for the jeans, whereby it costs more in South Africa compared to Vietnam.

Reflection

The speakers have largely focused on interest rates, whereby many banks have introduced ways of offering interest rates to the customers. The interest rates which are offered as analyzed by the speakers include deposit and borrowing interest rates. Also, the interest rates have been discussed as factors that have an impact on real estate. Another key issue that the speakers have talked about is the income and price relationship, whereby people with high incomes have high chances of affording various prices. Taking risks has also been discussed, whereby the speakers have focused on high variation and fail of loans. The risks have also been associated with high risks, whereby high-interest rates that banks impose to the investors can cause them to experience losses in their investments. GDP has also been discussed by the speakers whereby one of the speakers has largely focused on Vietnam and the wages in the country.

Vietnam has largely developed due to changes it has implemented in various sectors including agriculture. Therefore, one can learn that economic growth can be improved in many countries by focusing on various sectors such as education, business, agriculture, and education. Another issue that has been discussed is the impacts of the business sector in a country, whereby companies can be developed to ensure that they are productive. Also, companies create employment, which helps in economic growth. Government incentives such as tax incentives have also been discussed as one of the major factors that affect the economic growth of a country. Therefore, the governments need to ensure that companies and people are taxed fairly and the tax money is used for the development of the country. In many cases, poor financial management leads to a decline in economic growth. Therefore, the tax should be well managed and money should be allocated to various sectors to ensure that the growth rate is increased.

References

Bassier, I. and Woolard, I., 2018. Exclusive growth: Rapidly increasing top incomes amidst lownational growth in South Africa. REDI3x3 Working Paper.

Bassier, I. and Woolard, I., 2018. Exclusive growth: Rapidly increasing top incomes amidst low national growth in South Africa. REDI3x3 Working Paper.

Evans, O., 2019. Money, Inflation and Output in Nigeria and South Africa: Could Friedman and Schwartz Be Right?. Journal of African Business, pp.1-15.

Hall, K. and Sambu, W., 2018. Demography of South Africa's children.

Kabundi, A. and Mlachila, M., 2019. The role of monetary policy credibility in explaining the decline in exchange rate pass-through in South Africa. Economic Modelling, 79, pp.173-185.

Makaringe, S.C. and Khobai, H., 2018. The effect of unemployment on economic growth in South Africa (1994-2016).

Naraidoo, R. and Gupta, R., 2010. Modeling monetary policy in South Africa: Focus on inflationtargeting era using a simple learning rule. International Business & Economics Research Journal (IBER), 9(12).

Nazlioglu, S., Gormus, A. and Soytas, U., 2019. Oil prices and monetary policy in emerging markets: structural shifts in causal linkages. Emerging Markets Finance and Trade, 55(1), pp.105-117.

Percival, V. and Homer-Dixon, T., 2018. The Case of South Africa. In Environmental Conflict (pp. 13-35). Routledge.

Tran, L.M., Mai, C.H., Le, P.H., Bui, C.L.V., Nguyen, L.V.P. and Huynh, T.L.D., 2019. Monetary policy, cash flow and corporate investment: empirical evidence from Vietnam. Currency Crisis, p.72.