The Reserve Bank’s mandate states that “the Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in SA”, yet the Bank seems to be focusing solely on inflation to the detriment of economic growth.
We often blame former president Jacob Zuma and state capture for our woeful economy, but is the Bank not also partly responsible?
The modus operandi of the board of governors appears to be to fill data into an econometric model that predicts future inflation and make monetary policy decisions based thereon.
However this model seems to be mis-specified continually, overestimating inflation relative to the outcome and consequently monetary policy has been far too tight. April inflation was 3.7% excluding administered prices, which is towards the lower end of the 3%-6% inflation target band.
The monetary policy minutes speak about accommodative monetary policy despite SA having real overdraft rates of 6%, negligible real retail sales growth and multiple recessions. The governor of a central bank must not only be an informed academic but also a skilled gameplayer who uses his judgement to occasionally make bold steps — 25 basis point repo rate changes are not going to move the needle.
The current board of governors seems out of touch with the reality of lower structural inflation and the reflexive circle where confidence and growth feed on themselves, thereby exacerbating the current downturn.