South African Reserve Bank (Sarb) governor Lesetja Kganyago has reasserted the central bank’s independence, saying it will not tolerate any interference in its mandate of managing monetary policy, even from the minister of finance.
Kganyago made these remarks as he announced that the monetary policy committee (MPC) chose to keep the repo rate unchanged at 8.25% on Thursday afternoon. Three MPC members preferred to hold, while another two members preferred an increase of 25 basis points.
This brings to a pause a hiking cycle that began in November of 2021 and has seen rates rise by a cumulative 475 basis points. This has raised the cost of borrowing to levels that have placed great pressure on indebted individuals and households.
It is this pressure that has fuelled calls from within the ANC for government to pressurise the Reserve Bank to consider easing monetary policy and for the widening of its mandate over and above just inflation targeting to include economic growth and employment creation as well.
Replying to questions from journalists in Pretoria on Thursday, Kganyago said while the central bank holds regular engagements with the minister of finance, there was a clear line of distinction between fiscal policy managed by the National Treasury and monetary policy by the Sarb.
Though it is the responsibility of the National Treasury to set fiscal policy ... they don’t tell us what to do and how to do it and we don’t tell them what to do and how to do it.
— Lesetja Kganyago, South African Reserve Bank governor
“We set monetary policy on our own and monetary policy has got a very clear anchor. We have been given an inflation target. We employ our tools to achieve that inflation target. Fiscal policy has got a multiplicity of objectives; and so whereas monetary policy and the inflation target is for the Reserve Bank on its own and can deploy these tools to achieve its targets, fiscal policy is a different ballgame.
“Though it is the responsibility of the National Treasury to set fiscal policy, they have got a lot of other players that they’ve got to have on their side and it is never an easy job for them. But they identify their own fiscal anchors and what they consider in setting fiscal policy is for them to decide. They don’t tell us what to do and how to do it and we don’t tell them what to do and how to do it,” he said.
Speaking to Bloomberg at a meeting of Group of 20 finance chiefs in India this week, finance minister Enoch Godongwana said he had rebuffed a call by some within the ANC for him to push the central bank to use measures other than lifting borrowing costs to curb inflation. The ANC had tasked the finance minister to hold “urgent talks” with the Reserve Bank on the matter, but he was not in discussion with the bank on this, as its independence was constitutionally enshrined.
“The central bank in SA, by constitution, is independent and its purpose is defined as that of protecting the value of the currency in the interests of balanced growth,” Godongwana said.
Kganyago told journalists at the rates announcement that they would continue to target the mid-range inflation band in its rate determinations.
“Since early 2020, the committee has recommended additional and indirect means of lowering inflation that is within the reach of the public sector, including achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation, and keeping wage growth in line with productivity gains.”
He said while people believe that long-term growth outlooks can be manipulated by “playing around” with monetary policy, the central bank’s monetary policy only affects cyclical growth.
“We are an inflation-targeting central bank. This is the tool that we have, and it is the tool that we will deploy in response to any inflation risk on the horizon and in response to the outlook that we foresee. It is known that it could curb growth, but it only has an impact on cyclical growth.”
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