Monetary policy, South African inequality, equal opportunity, SARB South African Reserve Bank, Gini coefficient, Bantu Education Act of 1954, MPC Monetary Policy Committee, unemployment, repurchase rate, Monetary policy transmission mechanism, B-BBEE Broad-Based Black Economic Empowerment
In 1994 the first democratic elections in South Africa brought about the promise of equal opportunity and overall improvement of living standards. However, 26 years later the high levels of South African inequality still remain. This level of inequality has been institutionalised in the economy and is visible in many inequality measures. The mandate of the South African Reserve Bank (SARB) is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. The SARB also has a personnel philosophy that recognizes that equal opportunities for all, irrespective of ethnicity, race, gender, disability or religion, should be pursued. Therefore, even though the SARB utilizes monetary policy to follow its mandate, its actions will have an effect on inequality. This effect is conveyed through the monetary transmission mechanism.
[...] However years later the high levels of South African inequality still remain. This level of inequality has been institutionalised in the economy and is visible in many inequality measures. The mandate of the South African Reserve Bank (SARB) is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. The SARB also has a personnel philosophy that recognizes that equal opportunities for all, irrespective of ethnicity, race, gender, disability or religion, should be pursued. [...]
[...] Monetary policy has control over the policy interest rate (known as the repo rate in South Africa) which is usually a tool used in pursuit of its mandate of achieving price stability, but it also has indirect effects on inequality. These effects are felt through channels in the monetary transmission mechanism. These channels usually are subject to time lags and thus the effect of monetary policy is ambiguous. Macroeconomic policies that directly target inequality could be more effective in closing the gap between the rich and the poor. References E. Duffin Gini index – countries with the biggest inequality in income distribution 2017. Statista. Available: https://www.statista.com/statistics/264627/ranking-of-the-20-countries- with-the-biggest-inequality-in-income-distribution/ M. Keswell Education and racial inequality in post-apartheid South Africa. [...]
[...] Working Paper No. 2004-02-008, Santa Fe Institute, Santa Fe, New Mexico. D. Webster Why South Africa is the world's most unequal society. Mail & Guardian. Available: https://mg.co.za/article/2019-11-19-why-sa-is- the-worlds-most-unequal-society/ South African Reserve Bank Monetary Policy. Available: https://www.resbank.co.za/MonetaryPolicy/Pages/MonetaryPolicy- Home.aspx#:~:text=The%20primary%20objective%20of%20monetary,for%20growth%20a n d%20employment%20creation. Stats sa SA economy sheds 2,2 million jobs in Q2 but unemployment levels drop. Department of Statistics South Africa. Y. Mui Can monetary policy create jobs? [...]
[...] When an economy faces recessionary conditions, monetary policy typically uses it tools to stimulate economic activity by lowering the policy interest rate and/or reserve requirements in order to increase the money supply, these actions are known as expansionary policy. During boom periods, monetary policy then takes a contractionary stance by increasing the interest rate and/or reserve requirements to decrease the money supply in order to prevent the economy from ‘overheating'. The South African unemployment rate stands at 30.1 percent. High unemployment levels in a country drive economic inequality as many individuals are therefore earning no income. [...]
[...] Thus, expansionary monetary policy may contribute to increased inequality through this channel. The earnings heterogeneity channel implies that monetary policy has differential effects on wages across the income distribution. For example, an oil price shock has large negative effects on poor low-skilled households earnings than highly-skilled richer households. This reflects a lower likelihood of unemployment for highly-skilled workers and their ability to better adapt to new employment opportunities (Bell, 2020). Monetary vs macroeconomic tools on inequality It can be clearly seen that monetary policy action has consequences for inequality in South Africa. [...]
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