Reserve Bank (SARB) Governor Lesetja Kganyago warned again yesterday that the Central Bank stood against taking on a mandate of employment creation through monetary policy.
The SARB has drawn the ire of some political commentators and analysts who maintain that the bank needs to expand its mandate considering the reality of high unemployment, other than just focusing on inflation targeting to stabilise the economy.
Kganyago, delivering a public lecture titled “Keeping it simple: monetary policy, growth and jobs in South Africa” at the Wits School of Governance, said South Africa’s policymakers must find more practical solutions to deal with the country’s stubbornly high unemployment.
He said monetary policy alone was not the saving grace for the country’s socio-economic dilemma.
The country instead needed to be careful not to add to its policy objectives in a way that would push it into sharply higher inflation, he said.
The claim that more expansionary policies would solve the unemployment problem was simply an empty promise, backed up by little more than ideology and wishful thinking, he added.
“We have an unemployment problem that needs more credible solutions. Employment and growth are both limited by factors that are beyond the reach of the central bank’s tool-set,” he said.
He said South Africa’s best chance possible with monetary policy to get faster, more job-rich growth, was to maintain its focus on price stability with flexible inflation targeting − a proven framework.
“This enables the SARB to help maintain a stable environment that is conducive to economic growth, and because credibility is high, for it to create the necessary flexibility to ignore short-term inflation shocks.
“This implies we need to continue the normalisation of interest rates, moving them closer to the level that is consistent with more stable inflation rates and sustainable economic growth. At present, our repo rate is at 6.25%, still below long-term levels, but rising to a more sustainable long-term level that is consistent with inflation stabilising at 4.5%,” Kganyago said.
Redge Nkosi, the executive director of Firstsource Money and the founding executive board member of the London-based Monetary Reform International, said the governor’s main idea was to show that it was unnecessary to have more than the current mandate.
Nkosi said the central bank confused monetary policy with “interest rate policy”, which is what SARB is doing but calling it monetary policy.
“He tries to convince us (SARB’s) policy does take jobs (unemployment) into account yet does not want to add ‘unemployment’ as an explicit mandate. But we also see that the higher the interest rates, the higher the unemployment: how can we reconcile a policy of persistent high rates with jobs when it creates unemployment?” Nkosi said.
Meanwhile, engaging on questions including the establishment of a State Bank, for which he has said previously that the government simply needed to file a proper application, Kganyago reiterated that he did not know what a government bank would address in the financial sector.
He said the New Development Bank (NDB), established by Brazil, Russia, India, China and South Africa (BRICS), was finding it difficult to lend money to Russia with the current conflict between Russia and Ukraine, which has put the Soviets under sanction.
“We run these simulations on a regular basis. Two of these simulations could not take place because Russia is under sanctions, so that is what we have. The NDB itself found that it would be difficult to lend money to Russia now because Russia is under sanctions, so these things have to be located within the global financial strength.”
On a Central Bank digital currency, Kganyago said it was an exercise being conducted with counterparts including the Singapore Monetary Authority and more recently with the Bank of International Settlements, but that it was still a journey of discovery.
“If it is digital, what happens when there is load shedding, and so one of the things we are dealing with is that it needs to be possible for the digital currency to be available online and off-line, so if there is no electricity, you could still do trade in the complex area we have been exploring,” he said.
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