Lesetja Kganyago defends Reserve Bank’s mandate
Governor’s speech comes after public protector’s proposal for constitutional change to end institution’s role in inflation targeting
The country needs inflation targeting and the current central bank framework to deal with it remains necessary and credible, says Reserve Bank governor Lesetja Kganyago.
Giving the keynote address at a Centre for Education dinner on Monday, Kganyago said the Bank’s mandate to keep inflation low and protect the value of the currency is supportive of economic growth.
This comes after Public Protector Busisiwe Mkhwebane ordered Parliament to amend the Constitution to change the mandate of the Reserve Bank, as part of remedial actions following the CIEX investigation, of which the report was released at a briefing in Pretoria on Monday. Such a change would effectively put an end to inflation targeting
Mkhwebane’s proposed change is for the primary objective of the Bank to be to promote balanced and sustainable economic growth while ensuring that the socioeconomic wellbeing of citizens is protected.
Kganyago said: "If we can keep inflation lower, anchoring inflation expectations, that should in turn generate a lower rate of interest to support the economy.
"We will continue to honour our constitutional mandate and the trust placed in us by the South African society."
He explained that the announcements of lower inflation and lower growth may have suggested to some the time had come for rate cuts. However, a decision would only be made at the monetary policy committee (MPC) meeting in July.
"We confront major challenges, challenges that can’t be solved by changing the repo rate," he said.
The Reserve Bank had run accommodative macroeconomic policies throughout the financial crisis, Kganyago said.
"Now the global economy looks as healthy as it has in years but the South African economy is still struggling. At the present juncture, our fundamental problem is confidence," he said.
Talking about the recent Bureau of Economic Research confidence indices, the lowest since the financial crisis of 2008-09, Kganyago asked why confidence was so subdued, and answered that it was because everyone in SA was "worried about their country".