Reserve Bank has role to play in job creation and reshaping the economy
Central bank must pursue an inclusive monetary policy
The debate around the mandate and role of the Reserve Bank continues to divide opinions in this country, with the Reserve Bank hierarchy resisting the push for expansion of its mandate.
Recently, while in Davos, Reserve Bank governor Lesetja Kganyago argued that the Bank did not have the tools to create jobs, saying it was the education system that needed to be adjusted, therefore, the push for expansion of the mandate was moot.
We agree that there is the need for our education system to focus more on improving outcomes. For a long time, our focus has been on opening the doors of learning and improving literacy levels. As a result, many young South Africans are sitting at home with qualifications, but lack the skills needed by the economy.
Too many students leave universities with degrees in humanities and not enough with degrees in science, engineering, medicine and not enough graduates leave the system with practical skills, training, and experience. But this does not mean that the Reserve Bank’s mandate cannot be adjusted, and the bank has no role to play in employment creation.
Monetary policy, the domain of the Reserve Bank, has a profound impact on the SA economic environment and the ability to meet development goals. Monetary policy determines the interest rate. This interest rate then impacts on core areas of economic activity –, investment, inflation, workers’ purchasing power, and the sustainability of the public sector. Determination of monetary policy is not a purely technical question but has profound implications for all aspects of economic life.
While it is critical to manage inflation to protect workers’ meagre wages from being eroded, there is a need to balance managing inflation and stimulating the economy and reducing unemployment. The Bank’s overzealous approach increasing the repo rate by 250 basis points over the past 15 months is suffocating the economy.
The ever-increasing repo rate spurs the commercial banks to impose excessive rate levels upon low-income earners already battling to keep afloat.
Scrapping the Currency and Exchanges Act of 1933 and flexible exchange controls has facilitated the flight of capital out of SA, with many big corporations leaving for the US and Europe. Today private companies take about R85bn out of SA. That loss of money to the GDP also costs the economy about 150,000 jobs. Even the ideologically conservative International Monetary Fund said about three years ago that it wouldn’t pass judgment on certain capital controls if they are introduced for national goals and security reasons.
The federation has consistently argued that SA needs capital controls. Even the most developed economies introduce necessary temporary measures to prevent a mass exodus of capital outflows during a time of crisis or to protect their currencies.
The Reserve Bank is also the regulator of banks, therefore holding the power to reshape the economic landscape that affects us all. And, in a country like SA, we expect it to ensure banks lend for productive purposes that create jobs or boosts GDP, instead of consumption or for assets. Creating skills alone will not fix unemployment; we need many young people to also be job creators and entrepreneurs.
We need a central bank that will pursue an inclusive monetary policy and that will regulate the finance sector to ensure a redistribution of income and wealth to all South Africans as mandated by the Freedom Charter.