South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of targeting inflation.
“The mandate of the Reserve Bank has to be expanded to meet the needs of the economy,” Gwede Mantashe, the chairman of the African National Congress, said in an interview in the central city of Mangaung on Friday following the conclusion of the party’s national conference.
A change to the South African Reserve Bank’s mandate may require a constitutional amendment that the ANC won’t be able to effect on its own. While the party has taken a decision in principle for the change, more discussions are needed before proposals are submitted to lawmakers, Mantashe said.
The ANC’s proposal comes as the economy struggles to recover from the coronavirus pandemic and an ongoing electricity supply crisis that’s curbing output.
The South African Reserve Bank implements its inflation-targeting mandate in the interests of balanced and sustainable growth and has repeatedly said obstacles to bolstering economic growth fall outside the scope of monetary policy. Its inflation target is 3% to 6%.
“The market will interpret any change to the Sarb mandate as rand-negative because it will weaken the Sarb’s commitment to its inflation target,” said Charles Robertson, the global chief economist at Renaissance Capital in London.
A vote to change the bank’s constitutional mandate would require approval from two-thirds of lawmakers. The ANC only controls 58% of seats in the National Assembly, meaning it would need backing from opposition parties to push through any amendments. The opposition has stymied previous attempts by the governing party to change the constitution to make it easier for the state to seize land without compensation.
Mmamoloko Kubayi, the head of the ANC’s economic transformation committee, said various options needed to be explored to change the bank’s mandate, one of which is a constitutional amendment.
“It will be on government to ensure that the Reserve Bank mandate is amended to include employment,” she said. “It is government that will look at modalities.”
While the Economic Freedom Fighters, the third-largest party, agreed with the ANC on the need for the Sarb’s mandate to be changed, the governing party won’t make concessions to the opposition in exchange for their support to amend the constitution, according to Mantashe.
“You have a proposal, you take it to parliament and you mobilise other parties and if they want they come. If they don’t want to then they don’t,” he said. “We are not going to rush for it because we are desperate.”
The ANC has tried to make changes at the Sarb before. It decided in 2017 that the government should take ownership of the privately owned bank, but the process — which requires a change to the Reserve Bank Act and an agreement on the price of shares — has stalled.
The central bank is seen by investors, business and ratings companies as one of the few pillars of institutional strength in an economy hollowed out by state graft during former president Jacob Zuma’s rule. A 2017 proposal by now-suspended graft ombudsman Busisiwe Mkhwebane to change the bank’s constitutional mandate and curtail its independence sparked concern before it was blocked by the courts.
The ANC remains committed to preserving the bank’s independence and isn’t turning it into a scapegoat for the country’s economic woes, Kubayi said. “We are sitting in a crisis that says what are the tools, the options,” to respond to it now and in the future, she said.
Should the ANC be unable to change the constitution or decide against doing so, Finance Minister Enoch Godongwana may seek to appease party members by stressing the need for flexibility in policymaking to Reserve Bank Governor Lesetja Kganyago.
Former finance minister Pravin Gordhan said in a 2010 letter to then-Governor Gill Marcus that monetary policy should be conducted in a flexible manner and that temporary deviations of inflation from the target are allowed when there are price shocks. Though the instruction was touted as a “new mandate,” analysts saw it as an affirmation of the central bank’s work.
The Reserve Bank raised interest rates six times last year to counter the biggest global inflation shock in a generation, drawing criticism from labour groups and some politicians who’ve said it should do more to support South Africans and the domestic economy. Kganyago has repeatedly said price stability is sacrosanct and has referred to inflation as a regressive tax that increases poverty and inequality.
South Africa needs to consider central bank models in other countries “and study alternatives that we think will be suitable for our own situation,” Mantashe said.
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