Term:MONETARY POLICY COMMITTEE [MPC]

A committee formed by the Reserve Bank of South Africa which meets regularly to discuss and decide on interest changes within the country. This committee is chaired by the Governor of the Reserve Bank and has the function of managing monetary policy within South Africa to ensure economic growth and monetary stability. Almost every country in the world has a Monetary Policy Committee (MPC), whose function it is to manage the economy through monetary policy, which usually means adjusting the reserve rate to alternately decrease inflation or increase economic activity. The MPC is part of the Reserve bank and in South Africa it consists of 8 members – the Governor of the Reserve Bank, his three deputy governors and four senior members of the Reserve bank. The committee meets every two months to decide whether to increase the reserve rate, decrease it, or keep it at the same level. They can have interim meetings in exceptional circumstances. When the MPC increases the reserve rate (the interest rate which the Reserve Bank charges commercial banks) then all interest rates throughout the country go up – making it more expensive to service your bond, pay your credit card or maintain a bank overdraft. This tends to make consumers spend less and that tends to reduce inflationary pressure. Conversely, when rates are reduced, consumers gradually get more money in their pockets which leads to increased spending and stimulates growth in the economy.

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