South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of targeting inflation. The rand fell.
(Bloomberg) — South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of targeting inflation. The rand fell.
The central bank’s mandate has to be expanded to “meet the needs of the economy,” Gwede Mantashe, the chairman of the African National Congress, said in an interview in the central city of Mangaung on Friday following the conclusion of the party’s national conference. Mmamoloko Kubayi, the head of the ANC’s economic transformation committee, said various options needed to be explored to change the mandate, one of which is a constitutional amendment.
The proposal comes as the economy struggles with an energy crisis that’s curbing growth. The South African Reserve Bank, implements its inflation-targeting mandate in the interests of balanced and sustainable growth, and has repeatedly said bolstering economic growth and job creation fall outside the scope of monetary policy. The ANC’s previous attempts to make changes at the central bank have stalled and it won’t be able to effect a constitutional amendment on its own.
“It will be on government to ensure that the Reserve Bank mandate is amended to include employment,” Kubayi said. The ANC remains committed to preserving the bank’s independence and isn’t turning it into a scapegoat for the country’s economic woes, Kubayi said
Mantashe said that while the party has taken a decision in principle for the change, more discussions are needed before proposals are submitted to lawmakers. The ANC’s final resolution said the “SARB should implement monetary policy in a balanced manner, taking into account growth, employment, and exchange rate factors.”
The rand fell as much as 1.6% against the dollar and was trading 0.8% lower at 4:55 p.m. in Johannesburg.
“The market will interpret any change to the SARB mandate as rand- negative because it will weaken the SARB’s commitment to its inflation target,” said Charles Robertson, the global chief economist at Renaissance Capital Ltd. in London.
Read more: Why South Africa’s ANC Is Taking On the Central Bank: QuickTake
A vote to change the bank’s constitutional mandate would require approval from two thirds of lawmakers. The ANC only controls 58% of seats in the National Assembly, meaning it would need backing from opposition parties to push through any amendments. The opposition has stymied previous attempts by the governing party to change the constitution to make it easier for the state to seize land without compensation.
While the Economic Freedom Fighters, the third-largest party, agreed with the ANC on the need for the SARB’s mandate to be changed, the governing party won’t make concessions to the opposition in exchange for their support to amend the constitution, according to Mantashe.
Pillar of Strength
“You have a proposal, you take it to parliament and you mobilize other parties and if they want they come. If they don’t want to then they don’t,” he said. “We are not going to rush for it because we are desperate.”
The ANC in 2017 tried to make changes at the SARB. That year it decided that the government should take ownership of the privately owned bank, but the process — which requires a change to the Reserve Bank Act and an agreement on the price of shares — has stalled.
The central bank is seen by investors, business and ratings companies as one of few pillars of institutional strength in an economy hollowed out by state graft during former President Jacob Zuma’s rule. A 2017 proposal by now-suspended graft ombudsman Busisiwe Mkhwebane to change the bank’s constitutional mandate and curtail its independence sparked concern before it was blocked by the courts.
Flexible Policy
Should the ANC be unable to change the constitution or decide against doing so, Finance Minister Enoch Godongwana may seek to appease party members by stressing the need for flexibility in policy making to Reserve Bank Governor Lesetja Kganyago.
Former Finance Minister Pravin Gordhan said in a 2010 letter to then-Governor Gill Marcus that monetary policy should be conducted in a flexible manner and that temporary deviations of inflation from the target are allowed when there are price shocks. Though the instruction was touted as a “new mandate,” analysts saw it as an affirmation of the central bank’s work.
The Reserve Bank raised interest rates six times last year to counter the biggest global inflation shock in a generation, drawing criticism from labor groups and some politicians who’ve said it should do more to support South Africans and the domestic economy. Kganyago has repeatedly said price stability is sacrosanct and has referred to inflation as a regressive tax that increases poverty and inequality.
South Africa needs to consider central bank models in other countries “and study alternatives that we think will be suitable for our own situation,” Mantashe said.
Major emerging economies have considered taking a page from the likes of the Federal Reserve to broaden their central banks’ remit by adding responsibilities beyond inflation. The Fed has a dual mandate of stable prices and maximum employment.
Indonesia’s parliament passed a law last month tasking the central bank to directly finance the budget in times of crisis, though an earlier proposal to explicitly include job creation and economic growth in its mandate was dropped from the new legislation. In 2021, the Saudi central bank’s mandate was expanded to include supporting economic growth,
–With assistance from Rene Vollgraaff, Khuleko Siwele and Colleen Goko.
(Updates with ANC member’s comment in second paragraph.)
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