SARB ‘bound by the constitution, not politics’
‘If politicians want its autonomy removed, they will have to seek amendments to constitution’
South African Reserve Bank governor Lesetja Kganyago has again drawn a line in the sand in defending the Bank’s independence from political pressure and interference, saying the institution was constitutionally mandated.
“The independence of the central bank has been tested repeatedly and it is not just from political parties. You will know that the office of the public protector also tried to amend the constitution, but didn’t have the power to do so.
“Are we under pressure from political parties? Well, if they wanted to do it, they might be saying it elsewhere. None of the political parties came to engage us and say: ‘We think your independence must go.’ But even if they were to come and say our independence must go, we would tell them: ‘Go and change the constitution.’”.
Kganyago was speaking during a panel discussion at a PSG Think Big Series event amid a sharp rate hiking cycle and criticism the Bank has faced regarding its report on the Phala Phala debacle.
Its finding that President Cyril Ramaphosa did not have to declare the foreign currency related to the saga has been roundly rejected and is being challenged by opposition parties in court.
Asked whether the report dented the Bank’s credibility, Kganyago said he had no reason to question the probe’s independence and the Reserve Bank planned to file responding affidavits.
“For starters, as the governor, and my colleagues, the deputy governors, we did not get involved with the investigation. We leave that to the career central bankers. They are expected to act independently, without fear, favour or prejudice. We expect nothing less from them. We have no reason to secondguess them.
“The report itself has not been released because by law we couldn’t release that report. Now there are court papers that have been served, which would call for our record of decisions and those documents would be available for the courts. The issues will be ventilated in the court. Until then, we have no further comment.”
Asked if he hoped to receive a new term from the president next year, Kganyago said: “I will cross that bridge when I get to it. I have always been a servant of my people. The appointing person is the president. I will consider it if it is raised with me. Next year, in August, I would have been in public service for 30 years.”
Regarding rate hikes, which started in November 2021, Kganyago said inflation hurts the poor and therefore the Reserve Bank must fight it by hiking rates.
“It is because inflation is reducing the disposable income of people that the central bank has to step in to curb inflation and, unfortunately, the curbing of inflation involves us having to deploy interest rates and as we deploy interest rates, people feel pain. The medicine is not nice, but if the patient does not take the medicine now, the patient might end up in the ICU,” he said.
Efficient Group economist Dawie Roodt said the central bank’s position on Phala Phala and the hiking cycle put it in a fraught position ahead of next year’s election. It meant that if the Bank cut rates before elections, it could easily be perceived as a favour to the ANC, despite the central bank’s independence, he said.
“Imagine a situation where ... our president is Paul Mashatile and deputy president is Fikile Mbalula. He said he wanted the central bank’s mandate changed. The Reserve Bank increasing rates and making it harder for the state to pay interest on its debt is a clash between politics and monetary policy, and a clash between politicians and an independent central bank.”
Roodt added that perceptions are vital for the Bank’s work because other than interest rates, it relies on signalling to the market as a means to keep inflation in check. To this end, the public must have trust and confidence in it.
“The central bank is like a counterweight. It derives its powers from a big stick known as interest rates, and another power that is much more subtle is confidence in its institution. If the governor talks about raising rates at the sight of inflation, the effect of that will be enough to pull back on price increases,” Roodt said.
With the rand trading at R19.60 against the dollar, higher inflation and higher rates become likely if the currency’s performance does not improve. The pressure on the rand will be a stick in the wheel of any possibility to cut rates, he added.
Conversely, if a president announced reforms such as privatising struggling SOEs, that would have a positive effect on the currency and give the Bank room to cut rates, Roodt said.
The medicine is not nice, but if the patient does not take the medicine now, the patient might end up in the ICU
Lesetja Kganyago
Reserve Bank governor