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Cape Town - Incoming governor of the Reserve Bank Gill Marcus has a reputation for being fiercely independent, which suggests she won't necessarily bow to labour demands to abolish inflation targeting, said an analyst.
But she'll probably be more willing to listen to hardline unions and other groups with alternative suggestions than her predecessor Tito Mboweni, as her track record suggests she is more open to robust public debate.
"Globally all policies are up for debate," said Iraj Abedian, CEO of Pan-African Capital. "There's nothing harmful about debating the policy of inflation targeting for South Africa to see if there are any viable alternatives."
While Zwelinzima Vavi, secretary general of trade federation Cosatu, is quite vociferous on what Marcus should do, his comments underscore how the inflation targeting debate has yet to move from a political level to a technical one.
"We are very, very critical about the current stance on monetary policy. Our priority is for the whole policy [on inflation-targeting] to be reviewed," Vavi told Sake24.
"We would accept a review of the targets as consolation prize, but the current target of 3% to 6% is totally inappropriate and it was a pipe dream to think we could ever reach it."
Abedian said as soon as the debate moves from being political to technical, the bank can start contemplating alternatives and how these will affect the working class.
The respect Marcus commands in the trade union movement as well as her willingness to hear its representatives out opens up the possibility of shifting trade unions into a more technical debate. This, Abedian argues, may show there's no viable alternative to the current policy.
Inflation targeting debate
Abedian, who has worked closely with Marcus in her various parliamentary and government positions, said she doesn't just look at the top line; she's a detail person who wants to know all the facts and who is convinced by evidence and technical discussion.
Unlike Mboweni, who had a more autocratic approach to his job, Marcus has the right blend of technical tolerance and the type of inclusive leadership which defines the style of the new administration, including her immediate boss Finance Minister Pravin Gordhan.
Gordhan has made it clear that while government isn't married to inflation targeting, it will not make changes that open up the possibility of runaway inflation.
He recently told parliament's portfolio committee on trade and industry there were several "stakeholders", domestically and internationally, who questioned inflation targeting policy as a tool to manage inflation.
He welcomed a public discourse on the subject, saying the key was to find the best technique to control inflation without limiting economic growth.
Abedian said the inflexibility of the target (3% to 6%) is worth reviewing because inflexibility has so far proved counterproductive.
He said there is technical evidence to show that the band would be more beneficial if government was able to adjust it for up and down cycles as well as what was happening in other countries, while such a policy won't necessarily make investors jittery.
"If investors know the band is moved up and down using specific criteria, they can make their calculations accordingly," said Abedian. "Investors get confused when they do not know what those criteria are. It's not the band that gives investors confidence, it's the drivers defining the band."
- Fin24.com
