Picture: MARTIN RHODES
Picture: MARTIN RHODES

Considering the eventful first half of the year, the Reserve Bank is having a rather quiet end to 2019.

It seems an age ago that governor Lesetja Kganyago had to use public platforms to fight back against misguided calls for the Bank’s nationalisation, which would ironically have only served to enrich private shareholders who would have needed to be bought out.

It started in January when the ANC launched its election manifesto calling for the Bank to get rid of its private shareholding and for the state to take full ownership, reviving debate about a 2017 conference resolution.

That proved to be a costly and pointless distraction.

Costly because, like the debate on land expropriation the year before, it led to jitters among the international community about the ANC’s commitment to constitutionalism and the rule of law.

It was pointless because it wasn’t clear what this step would achieve because the 650 shareholders have no say on monetary policy.

The confusion went on for much of the first half of 2019, with even President Cyril Ramaphosa speaking in favour of nationalisation, which he said would enhance the country’s sovereignty.
It wasn’t until June that we got clarity, and that was after a more damaging intervention from the ANC and its secretary-general, Ace Magashule, in which he also added a call for the Bank to pursue quantitative easing.

It was only while the government was scrambling for damage control on this issue that the madness was jettisoned.

Since then, there have been conventional debates about the appropriate level of interest rates, which is what should be taking place. Whether one agrees with the policy decisions is another matter.

The Bank, which cut the repo rate in July to 6.50%, effectively reversing a hike from November 2018, is due to give its final policy decision of 2019. It will also provide the market with updated forecasts for inflation and the economy.

But the Bank is likely to be cautious and stay put. There’ll be no Christmas present from Kganyago on Thursday

On growth, the Bank was well ahead of the curve, downgrading its forecast to 0.6% in July, almost five months before the Treasury would finally update its woefully inaccurate prediction during the tabling of finance minister Tito Mboweni’s medium-term budget policy statement.

What will be interesting is the inflation forecasts for 2019 and beyond, and whether those justify an immediate interest-rate cut. An argument can be made that the economy desperately needs some kind of stimulus and the Bank should act immediately.

Results from retailers continue to paint a picture of a struggling consumer and subdued demand. With unemployment near 30% and a stagnant economy, the conditions in SA do not lend themselves to big worries about an inflation spiral.

But the Bank is likely to be cautious and stay put. There’ll be no Christmas present from Kganyago on Thursday.

As an alibi, he might look at the Bureau for Economic Research inflation expectation survey in which it gauges views of analysts, businesses, trade union officials and citizens on what they expect consumer prices to do.

Too close

Its third-quarter finding showed that inflation, which has surprised on the downside in 2019, is expected to accelerate and average 5% in 2020 and 5.1% the next year. The Bank has consistently stated that it wants consumer-price increases anchored at the midpoint of its 3%-6% target.

The problem is not just that the expectations are entrenched well above that midpoint, meaning that looser policy would bring into question the credibility of policymaking, it’s also too close for comfort to the upper end.

Inflation closer to 6% means a breach of the target is a clear danger in the event of unforeseen shocks that weaken the rand and boost oil prices. In that scenario, the Bank could find itself forced to react by aggressively tightening policy, while a lower reading gives it scope not to react immediately.

And that’s why the repo rate will be unchanged on Thursday.