Bad news for interest rates as hawks circle the Reserve Bank

 ·18 Feb 2024

The South African Reserve Bank (SARB) needs a new Deputy Governor, but reports show that government agencies are not aligned on an appointment amid concerns another hawk will be added to the MPC.

With Kuben Naidoo resigning from the Deputy Governor role last year and currently on gardening leave, the SARB needs to find a third deputy to join Rashad Cassim and Fundi Tshazibana. 

The Monetary Policy Committee (MPC) currently has three other members: Governor Lesetja Kganyago, head of the bank’s economic research department Chris Loewald, and adviser to the governor David Fowkes.

According to the Business Times, National Treasury and Finance Minister Enoch Godongwana prefer Mampho Modise, the head of the public finance division at the Treasury, to take the position vacated by Naidoo.

Kganyago, on the other hand, prefers Unathi Kamlana, the commissioner of the Financial Sector Conduct Authority (FSCA). The two work together at the Treasury, and insiders believe that the governor is trying to consolidate his power.

There has been pushback from the finance minister, as there are concerns that Kamlana will add another hawk to the committee.

Hawks prioritise keeping inflation lower through restrictive monetary policy. Doves, such as Naidoo, believe that economic expansion through lower interest rates is critical.

Economist Dawie Roodt said it would be better to appoint the new deputy from the Treasury, as it regularly engages with the SARB on monetary and fiscal policies.

The decision, however, lies with President Cyril Ramaphosa, who has to appoint a new deputy.

Kganyago previously said that the bank is also looking for another member to join the committee on top of the new deputy, meaning there would be seven committee members. He said it was better to have an odd number so he would not have the deciding vote in a tie.

Cuts are coming

Despite the governor’s hawkish tendencies, Allan Gray’s Thalia Petousis said that the market expects the MPC to cut interest rates by mid-year.

However, risks to inflation, including load shedding, Transnet’s woes, the El Nino Weather pattern, strong US labour and wage growth and the Red Sea attacks, are expected to keep the Reserve Bank on its toes.

The SARB’s model expects a short and shallow cutting cycle, taking the repo rate from 8.25% to 7.3% by the end of 2025, which is 100 basis points higher than the pre-pandemic level.

“Given the SARB’s mandate to maintain price stability in the economy and given Kganyago’s expectations for higher and stickier global inflation, a restrictive rate is seen as far more necessary than in the past,” Petousis said.

Read: Godongwana can’t save the day for South Africa: expert\

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