Reserve Bank can't do much about unemployment‚ says governor

South African Reserve Bank governor Lesetja Kganyago says one of the main contributing factors to the country’s high unemployment rate is that many people do not live close enough to where job opportunities are.

And the bad news is that the central bank is not well placed to solve the country’s “terrible unemployment problem”‚ which has lasted at least for two decades with its monetary policy.

Kganyago was speaking on Tuesday night at a lecture on monetary policy at the University of KwaZulu-Natal’s Westville campus‚ where he also addressed whether the Reserve Bank should aim to reduce the unemployment rate‚ currently at 26.5%.

He said one of the tactics was to keep inflation down‚ but it was difficult for the Reserve Bank to specifically target unemployment.

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“South Africa has a terrible unemployment problem which has lasted for at least two decades. It therefore makes sense that we should be looking for creative solutions to the problem. However‚ the central bank is not well placed to solve this with monetary policy‚” said Kganyago.

He said the first reason is that almost all of South Africa’s unemployment is explained by structural factors‚ “not the kind of cyclical factors that can be addressed by changes in interest rates”.

“The second reason is that monetary policy is already sensitive to cyclical factors; the difference in approach between a dual-mandate central bank (like the US Federal Reserve) and a more straightforward‚ single-mandate inflation targeter (like the SA Reserve Bank) is quite small‚” he said.

Kganyago added that one of the factors contributing to the high unemployment rate is spatial patterns.

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“Many South Africans do not live close enough to where job opportunities are‚” he said.

Another challenge‚ he said‚ was skills constraints.

“Employers would like to hire people but cannot find people with the skills they need.”

He said high unemployment is also affected by the design of the country’s labour market institutions‚ which tend to penalise small businesses and favour large firms.

“Looser monetary policies will not get our people Bachelor of Science degrees or move their residences close to where the job opportunities are. Nor will lower interest rates reform our labour markets‚” said Kganyago.

He said the scope for reducing unemployment through monetary policy “is therefore much smaller than its proponents perhaps imagine”.

Kganyago said the best a central bank can do is to stabilise unemployment at its natural rate.