Sarb shuns policy

The Reserve Bank will steer clear of policies that have failed throughout history as it continues supporting an economy devastated by the Covid-19 pandemic, Governor Lesetja Kganyago said.

Critics of the Reserve Bank have over the past four months called for it to implement aggressive quantitative easing and bankroll the state, which was already under severe financial strain before the pandemic hit, to prop up the economy.

It’s cut the benchmark interest rate to a record low, relaxed accounting and capital rules to promote lending, and more than tripled its holdings of South African government debt.

This is not “a time to venture into policies or instruments that have proved a failure in economic history”, Kganyago said in an address at the bank’s 100th annual general meeting.

The Reserve Bank has been adamant that its buying of government debt in the secondary market since March is aimed at reducing market dysfunction, and is not quantitative easing.

South Africa was stuck in its longest downward cycle since World War II and its economy contracted for three quarters even before the virus hit and restrictions to curb its spread were imposed. Sarb forecasts show gross domestic product probably dropped an annualised 32.6% for the three months through June and it projects a contraction in GDP of 7.3% this year.

Lifting the country’s potential growth rate cannot be left to the Sarb alone and also requires prudent macroeconomic policies, structural reforms and a lower cost of capital to support increased long-term investment, Kganyago said.

In line with its price-stability mandate, the Sarb targets inflation in a band of 3% to 6% and has lowered the benchmark interest rate by 300 basis this year.

“To place our economy on a sound and sustainable growth path, the South African Reserve Bank stands ready to provide support to the economy within its mandate,” Kganyago said.