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Politics hampering SA Reserve Bank, says Kganyago

Sep 28 2017 21:35
Mark Barton and Mike Cohen, Bloomberg

London - Politics is complicating efforts by the SA Reserve Bank to set monetary policy and keep inflation under control, according to its Governor Lesetja Kganyago.

“Our job is already difficult,” Kganyago said in an interview with Bloomberg TV in London. “What the politics does is that it just adds to the complexity.”

Uncertainty has prevailed for more than a year over who will replace President Jacob Zuma as leader of the ANC in December. The contest is widely seen as a two-horse race between Deputy President Cyril Ramaphosa and Nkosazana Dlamini-Zuma, the president’s ex-wife and former chairperson of the African Union Commission.

The central bank hasn’t been spared in the political infighting that accompanied the succession race, with the Public Protector instructing lawmakers in June to change the Constitution to make the bank focus on the “socioeconomic well-being of the citizens” rather than inflation. The High Court has set this order aside, after the Reserve Bank sought a review of her directive.

“The problem with the South African discourse on the central bank is that it is based on rhetoric and it is based on populism, rather than looking at the hard facts,” Kganyago said.

“What we didn’t anticipate is that the question about the mandate of the central bank will come from an institution such as the office of the Public Protector. That took us by surprise and we had to push back. We believed what we were saying and what we were doing was simply implementing what the constitution of the Republic of South Africa demands of us.”

Inflation expectations

The Reserve Bank kept its benchmark lending rate unchanged at 6.75% on September 21, citing concerns about higher inflation expectations. Only four of the 24 economists surveyed by Bloomberg predicted the unchanged stance, while the rest expected a cut.

Kganyago dismissed analysts’ suggestions that the bank had missed an opportunity to lower rates, saying its focus is to keep inflation within the target range.

“It doesn’t follow that we must change the monetary stance at every meeting,” he said. “We deemed it prudent to keep the rates the same.”

The bank has identified the rand as a key risk to inflation, which has remained within its 3% to 6% target band for the past five months. The currency weakened to a five-month low against the dollar on Thursday, as US President Donald Trump’s plans to slash corporate taxes buoyed demand for US assets.

The central bank expects the exchange rate to remain volatile as long as uncertainty persists, according to Kganyago. The bank hasn’t undertaken to support the currency, only to protect its value, he said.

“Protecting the value of the currency is what the currency buys at home, not what it buys in New York or what it buys in London,” he said.

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