David Masondo. Picture: SOWETAN
David Masondo. Picture: SOWETAN

Deputy finance minister David Masondo said in parliament on Thursday that his recent comments on monetary policy were in no way an attempt to influence the  Reserve Bank, the independence of which is guaranteed by the constitution.

Neither were his comments, made in an interview with Business Day, an attempt to usurp the powers and responsibilities of the Bank. In that interview, Masondo questioned the monetary policy stance adopted over the past few years by the Bank.

He stressed that the Treasury is not responsible for monetary policy, only fiscal policy.

Later on Thursday, finance minister Tito Mboweni and Reserve Bank governor Lesetja Kganyago issued a joint statement saying that effective co-ordination of fiscal and monetary policy “is a central pillar of good macro-economic management and policy certainty”. 

“The National Treasury has always respected the independence of the Bank, and communicates, when necessary, on fiscal and economic policy. The ministry of finance would, under normal circumstances not comment on the monetary policy stance or interfere in monetary policy decision making or decisions of the Bank. That is the role of the Bank. The Bank does not comment on fiscal policy and tax matters,” the statement read.

Deputy finance minister David Masondo clarifies his stance on the SA Reserve Bank.

Masondo had appeared with Treasury officials to brief the standing committee on finance about its annual performance plan and the strategic plan for 2019/2020, and to answer questions by MPs.

DA finance spokesperson Geordin Hill-Lewis asked Masondo about the appropriateness of his comments on monetary policy of the Bank. He said it had been the tradition or observed etiquette for a long time that the Treasury did not comment on the monetary policy instrument choice of the Bank. This did not align with Masondo’s comments questioning the interest-rate setting of the Bank recently.

The Bank’s monetary policy committee (MPC) will be meeting shortly and will decide on what action to take with regard to the interest rate, and Hill-Lewis said he would like to avoid a situation in which the MPC is possibly seen to be acting on the basis of Masondo’s comments rather than completely independently.

Masondo had said he thought the debate about the independence of the Bank had missed an important point, which should have been the stance of the current monetary policy.

Masondo replied saying the comments were made in response to questions about the debate within the ANC about quantitative easing and the role of the  Bank. He said the debate in the governing party was a question of whether the Bank’s monetary policy stance was helping economic growth. The constitution states that the Bank’s role is to maintain price stability in the interest of balanced and sustainable growth.

He noted that across the world there is a distinction between goal independence — set by the constitution or governments — and instrument independence. In SA, the government sets the inflation target range.

Masondo is a proponent of central bank independence. He said that since the finance minister sets the inflation target for the Bank, it is not “goal independent”. It is, however, “instrument independent” as it can use any instrument its deems fit to achieve the goals.

In his comments to Business Day, Masondo had said he thought the debate about the independence of the Bank had missed an important point, which should have been the stance of the current monetary policy.

“I think the cry out there, and the reason this debate is also being raised incorrectly through a discussion on quantitative easing, is because of [the level] of interest rates ... A helpful discussion would be about the appropriateness of the stance of the current monetary policy. For now, there is no need to use unconventional methods, such as quantitative easing, when conventional means — using the repo rate — can still be effective,” he said.

“The key issue for me is whether the interest rates are high. For instance, do the levels of interest rates ease access to credit by the private sector [business and households], mainly to support the government-stated objectives of promoting black-owned businesses, properties and the growth of small and medium enterprises in general?”

Masondo told Business Day that some studies he had seen showed that, from 1994 to 2008, credit extension to the private sector had grown at an average annual rate of 15.3%.

In comparison, he said, from 2010 to 2017, the rate had fallen to 7.5%. That might have limited private investment, especially the growth of small-, medium- and micro-sized enterprises (SMMEs).

Update: July 4 2019
This story has been updated with comment on David Masondo’s  remarks by finance minister Tito Mboweni and Reserve Bank governor Lesetja Kganyago.