Buthelezi: Let’s mull inflation targeting
Deputy Finance Minister Sfiso Buthelezi criticised the South African Reserve Bank on Monday for its policy of inflation targeting, saying that the issue should be opened up for debate.
Speaking at the Gordon Institute of Business Science in Johannesburg in his first solo public address, Buthelezi said while inflation targeting might be good for developed economies; it was bad for emerging economies such as SA’s.
“It might have been the right policy of the time [it was adopted], but when we are faced with the economic crisis that we’re having, is it appropriate?”
Inflation targeting was adopted by the bank in 2000 as a means of introducing predictability into monetary policy.
While it remained the policy of the day and the government was committed to it, Buthelezi said it should be put on the table for discussion.
“The role of the Reserve Bank is a contested space.… Let’s not be intellectually lazy; let’s not accept these things as gospel truth,” he said in reference to Public Protector Busisiwe Mkhwebane’s recent report on the Bankorp lifeboat.
Buthelezi’s comments stand out starkly against those of Finance Minister Malusi Gigaba, who said in an interview with Reuters last week that inflation targeting remained a cornerstone of the Reserve Bank’s institutional strength.
Argon Asset Management economist Thabi Leoka, also speaking at the Gibs discussion, responded by saying “inflation targeting is the best route for an emerging market”, as it helped achieve sustainable economic growth.
Buthelezi said the Treasury had not taken a position on the public protector’s report. He welcomed the Bank’s exercise of its right to take the matter on judicial review.
The Treasury believed strongly in the independence of
the Bank as enshrined in the Constitution. “The independence of the Reserve Bank is in the Constitution. We should respect that,” he said.
Economists have warned against tampering with the mandate of the Bank.
Investec chief economist Annabel Bishop said: “If SA’s central bank is no longer independent and is mandated by Parliament to cease inflation targeting and take up a new mandate, SA will lose its remaining key investment grade credit ratings.”
BNP Paribas economist Jeff Schultz said that the Treasury needed to be careful that it did not do more damage.
“There are a lot of conflicting views and the narrative is quite concerning,” he said.
The Bank had always been left to its own devices, Schultz said. While debate around inflation targeting was healthy, it was important not to undermine policy makers.
The deputy minister’s comments, however, may be encouraged by ANC alliance partners Cosatu and the SACP, who have welcomed the public protector’s report “regarding the role and reorientation of the Reserve Bank”.