Monetary policy shocks and household indebtedness in South Africa.

Abstract

This study aim was to examine how monetary policy shocks affected household indebtedness in South Africa from 1990 to 2021 using annual time series data from the South African Reserve Bank and FRED. To fulfil the research objectives, the auto-regressive distributed lag (ARDL) model was utilized. The model implies a negative correlation between interest rates (-0.1137) and household indebtedness across the duration of the study. The findings indicate that any change in interest rate has a negative (-0.1137) impact on household debt, and inflation negatively (-0.8277) and significantly affects household indebtedness, suggesting that any variation in inflation adversely impacts the level of household debt. F-bound test (5.3691) illustrates a sustained relationship between the dependent and independent variables. With the goal of protecting the value of the rand, the South African Reserve Bank utilizes interest rates as a tool to combat inflation. while the results in this study indicated that there is no correlation between interest rate and inflation. Based on the results it is concluded that the monetary policy is not effective and needs to be revised. Therefore, it is essential to design monetary policy in a manner that supports households, especially those belonging to the middle class and lower income brackets.