Hands off the Reserve Bank

 ·19 Jul 2023

The Democratic Alliance (DA) says that recent directions given by the ruling ANC to the finance minister Enoch Godongwana to ‘instruct’ the South African Reserve Bank (SARB) to manage inflation without interest rates is a gross breach of the independence of the central bank.

On Thursday (20 July), the Monetary Policy Committee (MPC) is expected to determine whether or not it will increase interest rates for the eleventh time in the current cycle in an attempt to curb inflation.

Since the start of the rate cycle in November 2021, SARB has increased rates by 475 basis points taking the repo rate to 8.25%. Although this has put excessive pressure on already cash-strapped South Africans, the central bank deemed the move necessary to bring inflation within the target range of 3% and 6%.

Despite the ‘instruction’ from the ANC, Godongwana sided with the Reserve Bank, ignoring the ANC’s request.

Speaking to Bloomberg, the finance minister said he was not in talks with the central bank and reaffirmed the institution’s independence.

The DA shared Godongwana’s view noting that it is vital that the SARB act as an independent economic institution with no political interference.

Furthermore, interest rates are the primary tool by which the SARB can reign in inflation. It is essentially its only method of economic control and ensuring currency stability.

Factors outside the SARB’s control – including load shedding, a failing national logistics company, high levels of unemployment and low economic growth – are all a result of the government’s policies and contribute to the economic reality and financial stresses on businesses and households in the country.

The DA said: “The ANC’s bold attempt to blame the SARB for (the ruling party’s) self-induced cost-of-living crisis is transparently disingenuous. It’s not the SARB’s duty to redress the ANC’s fiscal policy failings. The core problem lies in the fact that our economy is not growing. A direct result of the ANC’s failed economic policy.”

South Africa’s economy will remain vulnerable without substantial deregulation and reform to foster economic activity. The opposition party said that inflation will persist, South Africans will become poorer, unemployment will rise, and the economy will not grow.

“The SARB’s independence is not only constitutionally decreed but fundamentally crucial to ensure that monetary policy serves all of South Africa’s holistic interests, not merely the narrow interests of any political party.”

The ANC’s recent request is not the first time the ruling party has tried to interfere with the mandate of the Reserve Bank.

At the start of this year, talks emerged of amending the central bank’s mandate to also “meet the needs of the economy”, such as promoting employment – a duty solely in the hands of the government.

President Cyril Ramaphosa, however, downplayed these suggestions, stating that any change to the central bank’s mandate would take time.

“It requires a constitutional amendment; it’s not just a matter you embark on,” Ramaphosa said. “It’s not something that’s about to happen; it’s something that’s being debated.”

ANC heavyweights have also consistently spoken of nationalising the SARB.

Suggestions or not, talks of reducing the central banks’ independence threaten the economy and paint South Africa in a worse light in global financial markets.

According to the Bureau for Economic Research (BER), every time the mandate of the SARB comes under question, the markets react negatively, forcing the National Treasury to do damage control.

Read: South Africa’s tough balancing act

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