Suppose the Central Bank of Eswatini (CBE) would like to influence the interbank market rate (i...

 

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Suppose the Central Bank of Eswatini (CBE) would like to influence the interbank market rate (i ir) (in percentage form), which is characterised by the following inverse demand function for reserves (in Billion Emalangeni, E): i ir = 10 - 2R d Given the E2.5 Billion of non-borrowed reserves and the 6.75% policy rate, determine the minimum amount of liquidity absorption that CBE would have to make for its policy rate to become effective. i. Would it be worthwhile for CBE to pursue such liquidity absorption policy? Discuss. Suppose the Central Bank of Eswatini (CBE) would like to influence the interbank market rate (i ir) (in percentage form), which is characterised by the following inverse demand function for reserves (in Billion Emalangeni, E): i ir = 10 - 2R d Given the E2.5 Billion of non-borrowed reserves and the 6.75% policy rate, determine the minimum amount of liquidity absorption that CBE would have to make for its policy rate to become effective. i. Would it be worthwhile for CBE to pursue such liquidity absorption policy? Discuss.

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To determine the minimum amount of liquidity absorption required for the Central Bank of Eswatini CBE to make its policy rate effective we need to fin... View the full answer