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SARB independence threats are 'hand grenade with the pin out' for SA credibility - analyst

Jun 11 2019 20:10
Compiled by Carin Smith

The idea of government reviewing inflation targeting in South Africa's low-growth environment, as well as political threats against the independence of the SA Reserve Bank, amount to "a credibility hand grenade with the pin out".

This is the view of Peter Attard Montalto, head of capital markets research at Intellidex.

"The SARB, we think, has, so far, put a lid on these ideas, backed by National Treasury and especially Finance Minister Tito Mboweni. The long-term bias to action in this area, however, seems clear and is concerning," Montalto said in a report released this week.

In his view, the wider strategic question is whether President Cyril Ramaphosa and those around him understand the importance of certain issues - like SARB independence - that can cause severe fallout risk.

"The answer so far is no, given that the economic policy strategy is occurring in a highly contested political arena, with onslaughts from factional as well as ideological fronts," said Montalto.

According to Monalto, what investors essentially want to know from Ramaphosa is: "What is the plan?"

Interim damage

While Ramaphosa plays what Montalto calls "a long game", he is of the opinion that severe economic damage can be inflicted in the interim, even with the president winning out in the end. Montalto sees no clear overarching new policy narrative or deep decisions on things like the role of the public versus the private sector.

Instead he sees a short-term focus "on domestic content and special economic zones combined with a running jump at piecemeal low hanging fruit".

"Ramaphoria 2.0 is dead before it began. Markets seemed to have forgotten that politicking is still very much alive and kicking. Investors are right to be skeptical of the prospects for reform, but we need to firmly root this in what is actually occurring in Pretoria," he commented on Tuesday.

"Nervousness is setting in around the edges, with such weak growth and the shift in administration is creating a power vacuum into which more left-wing economic forces are attempting to step. As yet we can't see cause for us to raise current or potential growth estimates."

Counter-reaction

According to Montalto, markets seemed to forget that there would be a counter-reaction to Ramaphosa's victory in the national election.

"The clean-up is not linear and there is ongoing fightback generating noise. The markets also seemed to think there was a risk that issues like the SA Reserve Bank and land would be parked – which is not going to be the case," said Montalto.

"A root issue, however, is that we think easy ways out are being looked at rather than any more fundamental shift in mindset. As such, we do not believe there has been any fundamental discussion or decision-making on, for instance, the balance between stakeholders, state versus business, collaborative policy making via Nedlac versus strong and decisive central leadership control or similar issues that are foundational to any shift in economic policy making."

In his view, the Public-Private Growth Initiative that has been championed by Dr Nkosazana Dlamini-Zuma "has become somewhat divorced from the policy making centre of gravity". Therefore, he things there current frustrations in the private sector about this issue.

sarb  |  intellidex  |  quantitative easing  |  sa economy
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