Kganyago strikes back at MPC’s critics
Reserve Bank governor Lesetja Kganyago has rejected accusations that the central bank is too hawkish, saying its monetary policy committee (MPC) includes some of the most progressive economists in the country and debates interest rate matters thoroughly, freely and rigorously.
In an exclusive interview with Business Times this week, almost a month after his term was extended for another five years, Kganyago insisted that the MPC’s inflation-targeting approach was a sound means to keep inflation low and steady as well as preserve the value of the rand.
The inflation-targeting approach — which has seen interest rates rise sharply since 2021 — has drawn criticism from various quarters. Critics have suggested that the Bank’s mandate be broadened to include economic growth and job creation, and that the MPC should include economists who would look beyond inflation-targeting.
“The most progressive economists I know are in the Reserve Bank and there are quite a significant number of progressive economists at the Treasury too,” Kganyago said.
“I don’t know how you measure the scale of progressivity. I regard myself as a very progressive economist, by the way.”
He said the MPC holds sharp debates and even unanimous decisions on whether to cut rates, hike them or keep them on hold are arrived at through thorough discussion.
“If ... you sit in one of the meetings and you listen to the MPC members speak and you come to the next meeting, you would think that the guys who were speaking in the last meeting misspoke because they changed their views, and that is how dynamic the MPC is.”
Preparations for meetings include engagements with the Bank’s research, financial markets and economic statistics departments.
Three weeks before the MPC sits, its members will meet with the Bank’s forecast team for a briefing on what has changed since the previous rates assumptions were set and to consider data from researchers with alternative views.
“On the first day of the MPC, which is normally a Tuesday, there would be around 60 people in a big hall,” said Kganyago.
“There would be those who are leading and making presentations, MPC members, and these important senior staff would then be ask
ing questions to the presenters, to the forecast team, and so forth. The MPC members will also be asking questions.
“If anybody says to me a meeting of 60 people does not have a diversity of thought then we have got 60 people who do not think; there must be one person thinking and the other 59 are following. Now imagine 60 of them and check how many hands and perceptions and views you would have.”
Kganyago said that, as the governor, he is always the last to express his view at an MPC rates discussion.
“Why? Because we do not want [a situation where] what the governor says, the others follow. So the governor is made to speak last.”
Even after the governor has spoken, MPC members can still ask him questions. If there is disagreement, committee members debate the issues further to try to achieve consensus.
“If we can’t convince each other to move to a positive position, you will find us saying in the MPC, ‘So many members preferred this, and so many members preferred that, and this is the decision of the MPC.’ There is a diversity of thought and there is rigour.”
Asked if the announcement of his continued tenure was intended to protect the Bank from political interference, Kganyago said central bankers and financial markets generally did not like uncertainty.
“Before the elections in 1994, there was uncertainty about who was going to be the governor of the Reserve Bank, after these chaps who come from the bush take over the government.
“There was a conversation between De Klerk and Mandela, [who] took a decision to pronounce and say the governor will stay on after the elections.
“In 1998, from the beginning of the year, again, questions were being asked. Chris Stals’s term is expiring in 1999. He will be 65. Is he going to stay or is he going away? And if he goes, who will take over?”
Kganyago said that when the MandelaMbeki administration announced in 1998 that Tito Mboweni would take over from Stals as governor, the markets moved but later stabilised.
“When Trevor Manuel was appointed minister of finance and the rand was tanking, he got angry and said he is not going be dictated to by this ‘amorphous creature’ called the market. He went on to become probably the best finance minister this country has had.”
Kganyago said the Bank had been expecting inflation to start declining and reach the 4.5% midpoint target by mid-2025, but risks had emerged that were keeping inflation higher for longer.
“Some of those risks that we had identified seem to be materialising, or some of them might have even materialised, and it changed the inflation outlook. Now we expect that we will only hit the 4.5% target in the fourth quarter of 2025.”
Independent economist Duma Gqubule told Business Times the composition of the MPC should be changed, and consideration given to appointing external members who would make inputs on balanced, sustainable growth when rate decisions were discussed.
“We need a wholesale review of the monetary policy framework because they clearly have no empathy for what ordinary South Africans are going through,” he said
Gqubule added there were ample examples around the world where central banks appointed external members to the committees that make interest rate decisions, including the Bank of England.
“There was also a review in Australia of the monetary policy framework. It’s not completely unheard of. We need a [review] at so many levels, like interest rates as a tool. I think the central bank is ignoring the need for a balanced and sustainable growth imperative in line with the constitution.”