An Overview of the Repo Rate in an Inflation Targeting Economy

Abstract This paper compares the use of repo rate in South Africa during the pre‐repo and repo system by trending and comparing the interest rate fluctuations between two selected periods of 1990–1998 and 1998–2010. Using a structural vector autoregressive (SVAR) econometric method to determine the relationship between the repo rate and other selected key macroeconomic variables in South Africa, an improved monetary efficiency was found during the repo period, which can be attributed to the use of an inflation‐targeting framework. This is important as it provides a guide to policymakers on how effective the current monetary tool is, and how efficient the South African Reserve Bank (SARB) is in influencing the interbank rate, retail rates and inflation during selective periods.