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Finweek English Edition - - INSIDE - Tan­di­s­izwe Mahlut­shana tan­di­s­izwem@fin­week.co.za

Re­cently Janet Yellen was sworn in as the new chair­per­son of the US Fed­eral Re­serve. With the global econ­omy still frag­ile, there are some in­ter­est­ing par­al­lels to be drawn be­tween the role that Yellen will ful­fil and the pres­sures on South Africa’s own Re­serve Bank Gov­er­nor Gill Mar­cus.

Could they be a force to shape global f inance over the next few years if they worked closer to­gether?

Vunani Se­cu­ri­ties econ­o­mist Ilke Smit de­scribes the wa­ters Mar­cus is navigating: “South Africa is an econ­omy cur­rently strug­gling with be­low-po­ten­tial eco­nomic growth with inf la­tion ex­pected to breach the up­per limit of the tar­get band (3%-6%) soon.”

Isaac Mat­shego, an econ­o­mist at Ned­bank, says that one of Yellen’s ma­jor chal­lenges, which is dif­fer­ent from Mar­cus’s, is end­ing the mas­sive mon­e­tary stim­u­lus that has been im­ple­mented in the US over the past four years.

The US GDP growth rose to just over 4% in the third quar­ter of 2013 as both con­sumer spend­ing and busi­ness in­vest­ment strength­ened. Yellen there­fore has to nor­malise US in­ter­est rates as the US re­cov­ery gains mo­men­tum and un­em­ploy­ment con­tin­ues to drop, says Mat­shego.

An­other d i f f e rence bet ween t he t wo coun­tries is the sav­ings rate. The US en­joys a pos­i­tive sav- ings rate, whereas SA con­sumers are tra­di­tion­ally “dis-savers”.

Says Smit: “When in­ter­est rates rise con­sumers do not have a buf­fer in the form of sav­ings to as­sist con­sump­tion and drive eco­nomic growth, and in an en­vi­ron­ment of pos­i­tive sav­ings, stim­u­la­tory mon­e­tary pol­icy has not driven cur­rent ac­count def ic­its wider and en­cour­aged dis-sav­ing – where in SA, these dy­nam­ics have ad­versely im­pacted the cur­rency, which is cur­rently the main risk to the in­fla­tion out­look.”

Both Yellen and Mar­cus face dif­fer­ent chal­lenges as their macro-eco­nomic con­di­tions vary vastly. But does that mean that SA should not pur­sue a re­la­tion­ship with the US Fed or vice versa?

Kevin Lings, chief econ­o­mist at Stan­lib, says that a close work­ing re­la­tion­ship with the US Fed could be valu­able to SA in a num­ber of ways. One is the po­ten­tial for f low of re­search and in­for­ma­tion be­tween the two cen­tral banks.

The eco­nomic re­search unit at the US Fed is made up of three teams, the Di­vi­sion of Re­search and Sta­tis­tics, the Divis i o n o f Moneta r y Af­fairs, and the Di­vi­sion of In­ter­na­tional Fi­nance, to­gether em­ploy­ing ap­prox­i­mately 450 staff mem­bers, about half of whom are PhD econ­o­mists.

Smit, too, high- lights that there is an­other eco­nomic fac­tor the two could work to­gether on and learn from one an­other.

Says Smit: “A macro-eco­nomic co­nun­drum es­pe­cially rife in South Africa, which is start­ing to plague the US econ­omy in ever greater terms, is in­equal­ity in in­come dis­tri­bu­tion. Un­equal in­come dis­tri­bu­tion does not af­fect mon­e­tary pol­icy in the short term, but does lower the po­ten­tial level of eco­nomic growth in the long term, which could be some­thing ris­ing the com­plex­ity of US mon­e­tary pol­icy mak­ing in due course.”

Flow of ad­vice is there­fore an­other po­ten­tial ben­e­fit, says Lings, be­cause no cen­tral bank has all the an­swers. “That in­ter­ac­tion be­tween the Sarb and the US Fed can be ex­tremely help­ful for SA as it can help as well when it comes to pol­icy for­mu­la­tion and study­ing other mod­els.”

SA’s cur­rent Mon­e­tary Pol­icy Com­mit­tee (MPC) frame­work was adopted from the Bank of Eng­land MPC, and was strength­ened by for­mer mem­ber, Ian Plen­der­leith. Plen­der­leith was ap­pointed deputy gov­er­nor of the Sarb in 2003 un­der for­mer Gov­er­nor Tito Mboweni and worked with Mar­cus and Xo­lile Guma as joint deputy gover­nors.

De­spite be­ing dif­fer­ent, eco­nomic growth and job cre­ation are top pri­or­i­ties for both cen­tral banks. The Fed pur­sues a dual man­date of price sta­bil­ity and job cre­ation while the Sarb only pur­sues one man­date, price sta­bil­ity. Lings, how­ever, says that Mar­cus’s pol­icy sug­gests that she as­sumes a dual man­date and takes into ac­count the growth rate and job cre­ation.

Gill Mar­cus

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