SARB framework creates sustained money market surplus
The South African Reserve Bank (SARB) introduced a new surplus-based monetary policy implementation framework in June 2022, leading to sustained surplus liquidity in the banking system. This framework fundamentally reshaped money market conditions and banks' use of SARB facilities.
A new tiered floor system
In June 2022, the South African Reserve Bank (SARB) transitioned to a surplus-based monetary policy implementation framework (MPIF), establishing a tiered floor system.
This design allows banks to hold excess liquidity for daily operations and settlement, while depositing surplus reserves with the SARB within quota limits.
Reserves held up to a bank's quota are remunerated at the SARB policy rate, with balances above the quota earning a penalty rate of 100 basis points less than the policy rate.
This system enables the central bank to transmit monetary policy through interest on reserves, decoupling it from reserve scarcity and allowing independent operation of monetary policy and balance sheet policy.
The framework has maintained a sustained surplus liquidity position, reflecting its operational design and balance sheet developments.
Balance sheet shifts fuel liquidity
The surplus liquidity under the new MPIF expanded in three phases.
The initial phase involved the framework's implementation and unwinding of legacy liquidity-draining operations.
Early 2023 saw National Treasury (NT) withdrawals from the NTSDA, replaced by increased bank reserves.
The most significant expansion, from mid-2024, stemmed from Gold and Foreign Exchange Contingency Reserve Account (GFECRA) allocations to NT, injecting substantial liquidity.
To manage this, the SARB increased banks' quota limits from R138 billion in June 2024 to R315.0 billion by December 2025, alongside phasing out debentures and unwinding FX swaps.
Less reliance, more efficiency
The surplus-based MPIF fundamentally reshaped South Africa's money market, reducing banks' reliance on SARB refinancing operations.
This promotes liquidity redistribution via the interbank market, preserving effective monetary policy transmission.
SARB's active quota management has been crucial for accommodating elevated surplus liquidity and keeping short-term rates near the policy rate.