GILL Marcus did the three most important things she should have done to gain credibility as new governor of the Reserve Bank at her first press conference on Tuesday. But there is considerable room for improvement in her performance.
The most important thing Marcus should have done to gain credibility was to affirm that the Reserve Bank's primary goal is to fight inflation, and secondly to back that up by not cutting interest rates further.
Interest rates have already been cut by five percentage points since December 2008, bringing the prime overdraft rate to 10.5%. Marcus - rightly - kept the repo rate unchanged at 7% and asserted that her main job was to fight inflation.
The importance of affirming the Reserve Bank's main task as that of fighting inflation came to the fore this week, with the news that a task force of the ANC/Cosatu/SACP alliance is reviewing the broadening of the central bank's mandate.
This review is universally accepted to mean that the alliance wants employment and growth to be added to the Reserve Bank's target of fighting inflation. While Marcus didn't say she was against broadening the bank's mandate, she made it clear that its chief task was to fight inflation.
Asked about the alliance's plans, she said that monetary policy was an evolving process. In the past, there had been an approach of focusing on money supply growth. Today, the framework was inflation targeting. "The bank is happy to engage on the issues ... Its task is to keep inflation at bay," she said.
Letdown for Vavi
When the topic of the bank's mandate and the future of inflation targeting came up again, Marcus said that inflation targeting was a tool for a goal. "And the tool for any central bank is to combat inflation," she said.
The importance of her ramming home this message can't be emphasised enough. At a time when trade federation Cosatu has said it wants interest rates of 3% and for the central bank to pursue employment creation, she has made it clear that she is going to follow international best practice. This will come as a disappointment to Cosatu general secretary Zwelinzima Vavi, who so cheered the announcement of Marcus' appointment.
But Marcus must be faulted in the way in which she conveyed her views on the Reserve Bank's role in the economy. Instead of stating this upfront in her opening remarks, viewers had to wait for the questions to be asked by journalists. In fact, Marcus made the mistake of muddying the waters by spending an inordinate amount of time in her opening remarks on the global economy and the massive shocks it has suffered.
Her long-winded emphasis on the fact that the global environment had changed irrevocably unnecessarily raised fears that she was preparing viewers for something new. But, while she made it clear that she was open to engagement and that the bank "will have a view", she spelt out that her number one priority was to fight inflation.
The other inescapable question was on the strength of the rand. Marcus was twice asked whether she thought the rand was too strong, and whether the central bank would intervene to weaken the currency. Here she did the third thing that was required of her - made it clear that the currency can't be manipulated.
Press photographers back in full force
She said: "The Reserve Bank doesn't intervene to achieve a level [of the exchange rate]. That must be absolutely clear." However, she acknowledged that the rand's strength was of concern. Still, she said there were pros and cons - and one of the pros was that a stronger rand was good news for inflation.
So Marcus did what was required, and did so flanked by Monetary Policy Committee (MPC) members to show that it's not a one-man band. The press photographers, who had been banned under her predecessor Tito Mboweni, were back. But she made one key gaffe.
Her rambling opening remarks, focusing extensively on problems in the global economy, were a mistake. She told journalists what the budget deficit of Ireland was - and not a word about when SA inflation would return to the target. In this respect she would have done better if she had emulated her predecessor, and simply read the MPC statement.
True, Marcus wanted to show the scope of the MPC's discussions, and to emphasise that the world was in a completely different environment. But for market players who had to wait until 15:30 for the MPC statement to be put onto the website, the remarks lacked focus.
This is in stark contrast to this week's MPC statement itself, which was more focused than in the past. Previously, lists of statistics were given, but often without their link to inflation. She reinforced the message that the main task was to combat inflation by focusing the statement on inflation.
After only a week in the job, Marcus has got off to a good start, sending the right messages. But she should steer clear from deep and rambling discussions on the Great Recession (as she called it) - unless she is trying to make some subtle point that I'm missing. Still, despite room for improvement, a solid performance.
- Fin24.com