Nicola Mawson
South African Reserve Bank (SARB) Governor, Lesetja Kganyago yesterday said that “central banking is a punching bag” and that everybody had an opinion on how it should be conducting itself in terms of monetary policy.
Kganyago was addressing an audience during a memorial service hosted by the South African Revenue Service (Sars) for Pravin Gordhan, an anti-apartheid activist who held various government posts including as Commissioner of Sars and Minister of Finance.
Speaking just days after the SARB’s Monetary Policy Committee voted to drop the interest rate for the first time in four years, Kganyago said, “if you want to destroy a democracy, go for his [Gordhan’s] institutions. Undermine those institutions. Attack those institutions.”
He added: “And I am speaking because central banking is a punching bag. In South Africa, there are some 62 million of us, and everybody knows exactly what the central bank must do. I have got no doubt when it comes to Sars, the 62 million people do not know what Sars must do.
“What they probably would be telling us is what Sars should not be doing. And it is no wonder that when our democracy was under attack, the one institution that got a particular ugly focus was the South African Revenue Service,” Kganyago said.
There have been various debates over the years as to the SARB’s ownership in the hands of a few individuals, suggestions that its mandate may change, and worries that calls for its nationalisation would detract from its independence.
Dawie Roodt, chief economist at the Efficient Group, explained that the bank was doing a good job as it was highlighting persistently high inflation in areas in which prices were administered, such as electricity and fuel, and were not subject to the usual supply and demand rules of economics.
“The real problem here is an uncompetitive macro-economic environment,” Roodt said.
By highlighting the fact that some areas of the economy are protected and uncompetitive, such as Eskom through National Energy Regulator of South Africa-determined increases, the SARB ensures that South Africans speak out against higher than inflation increases, he said.
Earlier this year, a Macro-economic Policy Review by the National Treasury noted that a key issue the SARB has needed to deal with has been inflationary pressures generated by administrative prices, which adversely affects South Africa’s ability to be competitive.
Old Mutual Group chief economist, Johann Els, said while the SARB may be overly conservative when it comes to cutting interest rates, “I think they're doing a pretty good job”.
“Inflation is enemy number one for the consumer, and it is the priority of the central bank, and I totally agree with that, to get inflation under control.”
He explained that current cost of living was not being influenced by demand, as “there’s no consumer goods inflation at all”.
“I totally agree with Governor Kganyago that the most important negative impact on the economy has been structural constraints. And those are at the door of government: the electricity constraint, the logistical issues, the water supply issues, the electricity grid issues, the lack of ability to make it as easy as possible and cheap as possible to start and run a business, all those kind of issues are more harmful to the economy,” said Els.
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