EDITORIAL: Reserve Bank debate a big distraction
Calls for change in its mandate are unnecessary and based on a misconception of the powers of the Bank
In the midst of the Ace Magashule-induced market turmoil last week, finance minister Tito Mboweni lamented that he couldn’t understand the obsession with the Reserve Bank. He’s not alone.
From failing municipalities to the state of its national sports teams, SA has many problems that need special attention, but don’t get it. We don’t spend enough time discussing the dismal state of our schools, or why poor women can’t access reproductive health services that the constitution says they are entitled to.
From the noise one hears about the Bank, one would think it has a magic wand that could fix everything, create jobs and put the country on the road to being as rich as Switzerland. The reality is that it can’t and the noise is just another expression of the country’s tendency to postpone difficult conversations and seek distractions.
The governor also regularly gives presentations to parliament, which gives the lie to the idea that it operates in isolation with no political oversight.
On the Bank’s mandate, governor Lesetja Kganyago has many times made the point that the wording of the constitution gives him the flexibility to consider the impact on growth and employment when making interest-rate decisions. The “primary objective” of the Bank is to “protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic”.
The Bank, the constitution goes on to say, “in pursuit of its primary object, must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the Bank and the cabinet member responsible for national financial matters”.
Defenders of the status quo have consistently pointed out that the Bank doesn’t set policy and that this is the responsibility of the finance minister. The governor also regularly gives presentations to parliament, which gives the lie to the idea that it operates in isolation with no political oversight.
Kganyago and Mboweni argue that all of these elements mean the mandate of the Bank is already broad enough, and that in its conduct it is politically accountable.
On economic growth, the Bank’s monetary policy committee, which meets every two months or so, always refers to the outlook for growth in its statements explaining its decision on interest rates. In the May statement, for example, after a meeting that saw the Bank narrowly deciding to keep rates unchanged, it took a mere seven words to get to the first mention of “growth”, though that was in reference to the global, rather than local, outlook.
Overall the statement mentioned “growth” 11 times, and its forecasts are updated more frequently than those of government, which haven’t been revised since the February budget.
The Bank also takes the growth forecast into account in its model when determining its inflation projection. So it’s hard to argue that it is not concerned with growth. And it’s even harder to argue that the constitution as it is worded does not enable the Bank to consider sustainable economic growth and with that employment.
The argument, therefore, that the constitution must be changed to include an explicit employment mandate has echoes of the similarly frustrating recent debate on land expropriation. Here, top legal minds argued that the constitution already allowed for expropriation without compensation, and should be applied to test the law. But instead an enormously damaging political row ensued in which those on the political fringes made maximum political returns at the expense of the economy.
The consequences of that were that the ANC caved to populism and has promised a constitutional change that has already done enormous damage to investor confidence.
While a public debate should never be shut down, another such ordeal as the land debacle would best be avoided. It is strange, however, that instead of obsessing about all the major crises — from education to health — that need immediate action, the focus seems to be on the policy tool that’s likely to have the least effect.