SA not alone if it changed the Reserve Bank’s mandate
Many countries’ central banks have dual mandates or a broader role in their state’s policy than that of SA’s, with attendant pros and cons
London —Debate has erupted within the ANC about whether to widen the role of the Reserve Bank to encompass job creation and economic growth alongside its existing remit of ensuring price stability.
Ahead of the Bank’s three-day monetary policy committee meeting in July, Reuters used multiple sources to look at the mandates of other central banks.
Which other emerging-market central banks have a broader role?
Several countries including Russia, Ukraine, Malaysia, the Philippines, Iraq, the Czech Republic and Hungary have a broader mandate that also covers the promotion or support of economic growth or development in addition to ensuring price stability.
Turkey’s central bank, which has been criticised for its handling of the country’s economic troubles, has a mandate that includes supporting the growth and employment policies of the government “provided that it shall not conflict with the objective of maintaining price stability”.
Other countries have had similar discussions to SA about the role of their central banks.
Brazil’s government last year weighed overhauling the central bank as part of a plan to cut state expenses and strengthen the economy. That included discussion on whether to add the monitoring of employment to the central bank of Brazil’s duties.
How do the mandates of central banks compare with those in developed markets?
Traditionally, emerging-market central banks have tended to have a slightly different mandate to those in the developed world. More volatile financial markets and currencies mean many in the past acted as defenders of financial stability, as well as fighters of inflation.
However, with inflation in some emerging markets now largely tamed and many less reliant on external funding, the role of some is shifting to focus on keeping inflation in check as well as boosting growth, often a priority for populist governments.
In general, inflation-targeting has become more fashionable among central banks in recent decades as they have gained greater independence. New Zealand and Britain were among the first to adopt the technique involving making public a projected inflation rate, then attempting to steer actual inflation towards that target using interest rate changes.
What are the pros and cons of a wider mandate?
Debate about central bank mandates has tended to be more prevalent in major markets. The US Federal Reserve, the Reserve Bank of Australia and Reserve Bank of New Zealand have dual mandates under which they seek to boost employment while keeping price stability in check.
Proponents of the structure say it ensures central bank policies do not undermine job creation, while enabling clear communication with the public, as inflation and unemployment are widely viewed as important gauges of economic well-being. But detractors say having a dual mandate can distract the central bank from its most important focus, of ensuring price stability, potentially leading to higher inflation without more jobs.
How independent are emerging central banks compared with those elsewhere?
One of the fears about any changes to the Bank’s mandate is that it could open the door to political meddling. Some critics draw parallels with Turkey, where political interference has raised doubts about the central bank’s independence.
Globally, five central banks have no formal autonomy: Brazil, Thailand, Poland, Norway and China, according to a study last year by Brazilian bank Itaú.
The US Fed is among central banks with the most autonomy. It can deploy policy instruments as it chooses and apportion levels of priority to each of its three objectives set by law: maximum employment, stable prices, and moderate long-term interest rates.
Australia, Canada and Colombia are examples of those with more limited powers, the Itaú study found, whereby the goals of monetary policy are often set by the government, often working in unison with central banks. The central banks then have the freedom to set the right policy to achieve those goals.