ANC to dis­cuss Re­serve Bank’s man­date

Deputy fi­nance min­is­ter, Sfiso Buthelezi, re­cently ques­tioned the rel­e­vance of in­fla­tion tar­get­ing in the lo­cal econ­omy.

Finweek English Edition - - THE WEEK IN THE NEWS - Ed­i­to­rial@fin­week.co.za Mariam Isa is a free­lance jour­nal­ist who came to SA in 2000 as chief fi­nan­cial cor­re­spon­dent for Reuters news agency af­ter work­ing in the Middle East, the UK and Swe­den, cov­er­ing topics rang­ing from war to oil, as well as pol­i­tics

deputymin­is­ter of fi­nance Sfiso Buthelezi has called for a de­bate on the mer­its of in­fla­tion tar­get­ing in South Africa, say­ing that while the pol­icy may have been ap­pro­pri­ate when it was in­tro­duced 17 years ago, it may not be help­ful at a time when the econ­omy has tipped into a re­ces­sion.

His re­marks dur­ing a panel dis­cus­sion at the Gor­don In­sti­tute of Business Science (GIBS) will add to con­cern over pos­si­ble changes to mon­e­tary pol­icy af­ter Public Pro­tec­tor Bu­sisiwe Mkhwe­bane spooked fi­nan­cial mar­kets on 20 June by sug­gest­ing that the coun­try’s Con­sti­tu­tion be al­tered to change the Re­serve Bank’s in­fla­tion tar­get­ing man­date.

“We ar­rived at this 3% to 6% in­fla­tion band un­der dif­fer­ent eco­nomic con­di­tions […] do you think that per­haps un­der these try­ing eco­nomic con­di­tions we need to re­visit that? Is this rel­e­vant for all sea­sons?” Buthelezi said.

“There are is­sues which we must dis­cuss, then let’s allow a su­pe­rior ar­gu­ment to win […] eco­nomic pol­icy is not gospel truth, it changes, it’s dy­namic and it gets af­fected by a num­ber of fac­tors.”

Buthelezi pointed out that other cen­tral banks around the world had dual man­dates, which also tar­geted growth and un­em­ploy­ment. But he did not men­tion the fact that all of these is­sues had been dis­cussed and ex­ten­sively re­searched ahead of the in­tro­duc­tion of the in­fla­tion tar­get­ing frame­work, which is a pol­icy set by the Na­tional Trea­sury.

The Re­serve Bank has said that the Public Pro­tec­tor’s pre­scribed re­me­dial ac­tion for its man­date would have a neg­a­tive impact on its in­de­pen­dence, and that its le­gal team had ad­vised that the step fell out­side her pow­ers and was un­law­ful. It has since brought an ur­gent ap­pli­ca­tion be­fore the North Gaut­eng High Court to have the ac­tion set aside.

Dis­parate views on in­fla­tion tar­get­ing

Deputy min­is­ter of fi­nance Buthelezi in­sisted that Trea­sury be­lieved in the in­de­pen­dence of the Re­serve Bank but that nei­ther it nor the Public Pro­tec­tor had acted out­side of their man­dates. Although he main­tained that he did not have a view on whether in­fla­tion tar­get­ing should be scrapped, his com­ments sug­gested other­wise.

“There’s a school of thought that says in­fla­tion tar­get­ing might be good for de­vel­oped mar­kets which don’t have the chal­lenges we have but are very bad for an emerg­ing econ­omy like ours,” he said. The higher in­ter­est rates, used to keep in­fla­tion low, raised the cost of fi­nanc­ing for both small business and gov­ern­ment, and there was an in­verse re­la­tion­ship be­tween in­ter­est rates and in­vest­ment, he stated.

“The list goes on and on […] it chokes ag­gre­gate de­mand and chokes eco­nomic growth.”

Ar­gon As­set Man­age­ment econ­o­mist Thabi Leoka, who was part of the GIBS panel, said there was a need for more un­der­stand­ing of the role of the Re­serve Bank and the value of low in­fla­tion, which she pointed out is strongly linked to eco­nomic growth and has been adopted by most emerg­ing mar­kets.

Pol­icy con­fer­ence to ad­dress man­date, land re­form

Buthelezi said Trea­sury had not taken a view on chang­ing the Re­serve Bank’s man­date, but the is­sue would be one of those dis­cussed at the pol­icy con­fer­ence of the ANC, which started on Fri­day 30 June. He em­pha­sised that eco­nomic pol­icy was not decided by any in­di­vid­ual, and slated credit rat­ing agencies for cit­ing Pres­i­dent Jacob Zuma’s Cabi­net reshuf­fle at the end of March as a rea­son to ex­pect change. Standard & Poor’s, which down­graded SA’s sov­er­eign rat­ing to junk af­ter the reshuf­fle, warned late in June that any sig­nif­i­cant changes to the Re­serve Bank’s man­date that weak­ened its pol­icy flex­i­bil­ity and in­de­pen­dence would be likely to lead to rat­ing ac­tion. Buthelezi said an­other con­tro­ver­sial topic, the is­sue of land ex­pro­pri­a­tion with­out com­pen­sa­tion, would also be dis­cussed at the con­fer­ence. “The fact of the mat­ter is that ‘will­ing buyer, will­ing seller’ doesn’t work […] the question is what do we do about it.” There is mount­ing con­cern in the business and in­vest­ment com­mu­nity that Zuma and his back­ers are pur­su­ing pop­ulist poli­cies that will ul­ti­mately hurt the econ­omy and its poor ma­jor­ity in a bid to boost voter sup­port and win the lead­er­ship con­test at the ANC’s elec­tive con­fer­ence in De­cem­ber. Mam­pho Modise, chief di­rec­tor of pol­icy and risk man­age­ment at Trea­sury – who was also on the GIBS panel – said that the econ­omy’s slow pace of growth would make it dif­fi­cult for Trea­sury to col­lect the tax rev­enues needed to con­tinue with its pol­icy of con­sol­i­dat­ing debt. “We will hope that things turn around and we will con­tinue to do what we can do as gov­ern­ment to make sure that we don’t mis­bal­ance the growth and the fis­cal con­sol­i­da­tion,” she said.

Sfiso Buthelezi

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