Reserve Bank not the engine of growth – Kganyago

Lesetja Kganyago, the governor of the SA Reserve Bank, has refused to be drawn into the debate about whether the bank’s mandate should be extended to include targeting economic growth.

Kganyago told delegates attending the annual general meeting of the SA Chamber of Commerce and Industry, which took place on Thursday at Emperors Palace in Johannesburg, that any expansion of the bank’s responsibility could only be done by amending the Constitution. He would not express an opinion on the appropriateness of the idea.

The central bank has been lauded for the way in which it has implemented monetary policy over the past 16 years. This has resulted in calls from certain circles that its mandate be broadened to cover economic growth and jobs – akin to the directive of central banks such as the Federal Reserve.

In response, Kganyago said the separation of the mandates did not mean the reserve bank ignored growth considerations when setting monetary policy.

“The Constitution states that what we do should be in the interest of balanced and sustainable growth in the Republic,” he said.

“Our view is that long-term trends in growth or potential output are determined by real factors in the economy. Monetary policy can only influence cyclical variations of growth around the growth trend.

“[But] monetary policy cannot be an engine for sustained growth.”

To address the declining trend in growth and potential output evident in the past few years, government needed to implement structural reforms, as spelt out in the National Development Plan, he said.

These included addressing infrastructure gaps, education, labour and product market efficiency, productivity growth and institutional strength, he said.

The governor acknowledged difficulties in building the consensus required between various stakeholders to tackle thorny issues such as labour and product market reforms and changing competition laws.

“These are political decisions, which are often difficult and, inevitably, involve entrenched interests,” he said.

“It is often difficult to get society’s buy-in or to change expenditure priorities when the country’s requirements are diverse and the means limited.”

Kganyago added that South Africa’s strong institutions had thus far helped the country to avoid a downgrade by the ratings agencies.

“Our institutions need to be protected and improved to maintain the country’s competitiveness, given that we remain under threat of a downgrade,” he said.

The world’s “big three” rating agencies – S&P Global, Fitch and Moody’s – are expected to announce their respective rating decisions with regard to South Africa by year-end.

On the subject of inflation, the governor said that, while recent data pointed to the moderation of price pressures, the outlook remained clouded by volatility in the rand exchange rate. This would affect the outlook for commodity prices and the future direction of US interest rates. “The exchange rate remains a risk to the inflation outlook,” Kganyago said.

“The inflation picture itself also remains uncertain, as reflected by the expectations of the price setters in the economy,” he added, citing figures of between 6.2% and 6.3% provided by business and labour unions for next year.

Addressing the meeting, Deputy Minister for Cooperative Governance and Traditional Affairs Andries Nel said government would continue seeking to build trust with business to encourage long-term growth.

Pointing at private companies’ bulging balance sheets – estimated to be holding as much as R600 billion in cash – Nel urged the private sector to do more to help reduce poverty and improve social cohesion.