The Relationship between the Repo Rate, Disposable Income, Inflation and In Turn Economic Growth in South Africa

Research proposal: the relationship between the repo rate, disposable income, inflation and in turn economic growth in South Africa

Background:

According to (BusinessDictionary.com, 2014) the repo rate is a rate, otherwise should for Repossession is known to central banks as the discount rate , which a central bank buys back government securities from any commercial bank all relative to the current level of money supply that the central bank wishes to keep. In more simple terms it can be suggested that the repo-rate is the rate that commercial banks have to pay when they borrow funds from the central bank to help perform transactions in their daily transactions. If it is in the central banks best interests to expand money supply to stimulate growth, the repo rate will decrease and if the central bank wants to decrease the supply of money in circulation, the repo rate will increase (BusinessDictionary.com, 2014). To help understand the role that the repo rate plays, one needs to better understand the concepts disposable income and economic growth play seeing as they are indirectly affected by the repo rate.

Disposable income is the ‘net’ income that households can spend on goods and services after deducting savings and taxes (Investopedia, 2009). It can be said that disposable income can be used as an important indicator to assess the direction that the economy is going in, hence economic growth or decline in economic growth. An increase in the disposable income is good for economic stimulation, whilst a decrease would not be complementary for economic growth (Investopedia, 2009).

For the repo rate to affect the outcome of economic growth, it first needs to have a layoff effect on the prime rate and disposable income. According t...

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