ISAAH MHLANGA: Reserve Bank cannot depress rates to lower capital costs

16 July 2020 - 16:16

In a recent engagement with fellow economists on the role of monetary policy in boosting economic growth, a colleague advanced the familiar argument that the rate of return on capital is greater than economic growth and lamented that the Reserve Bank has kept policy rates way too high and made it too costly to fund investment. The argument then follows that the Bank must depress long-term interest rates to reduce the cost of funding for the state and investors.

At its basic level the cost of capital is determined by supply and demand for that capital in the economy, which includes global capital markets. As long as an economy does not accumulate savings, in other words it is a net borrower, the cost of capital will remain high. Scarcity drives the price of resources higher. This brings the natural equilibrium within the Solow growth model, where the cost of capital will always be greater than economic ...

South Africa Latest News, South Africa Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

ISAAH MHLANGA: Reserve Bank cannot depress rates to lower capital costsCost of capital is determined by supply and demand for that capital in the economy
Source: BDliveSA - 🏆 12. / 63 Read more »

ISAAH MHLANGA: Reserve Bank cannot depress rates to lower capital costsCost of capital is determined by supply and demand for that capital in the economy
Source: BDliveSA - 🏆 12. / 63 Read more »

Major interest rate relief hasn’t stopped SA households tightening their belts – Reserve BankProperty development, consumer goods manufacturing, mining, and resource companies increased their demand for working capital – which saw a boost to loans.
Source: TheCitizen_News - 🏆 6. / 75 Read more »

Reserve Bank faces tough call despite collapse in inflationConsumer inflation slows to 2.1% in May, breaching the lower end of the Reserve Bank’s inflation target range
Source: BDliveSA - 🏆 12. / 63 Read more »

Reserve Bank faces tough call despite collapse in inflationConsumer inflation slows to 2.1% in May, breaching the lower end of the Reserve Bank’s inflation target range
Source: BDliveSA - 🏆 12. / 63 Read more »

Department of basic education claps back at school opening criticismBasic education will not roll over and close the school year, said spokesperson Elijah Mhlanga
Source: TimesLIVE - 🏆 28. / 59 Read more »