The Reserve Bank has withdrawn from the public debate about its nationalisation and is leaving it to the politicians, governor Lesetja Kganyago says.
“We have spelled out why we were opposed to that and quite frankly we think it is a distraction. But we have decided to step away from the debate,¨” he said on Wednesday at an event hosted by the Cape Town Press Club.
“We will engage in the government process and as the legislation comes through parliament we will express our own views about those amendments and hopefully we will be heard. It is a debate we are no longer engaging in. We will leave it to the president and the minister of finance,” he said.
The Reserve Bank is one of the few central banks in the world that has private shareholders. The bank has argued though that the shareholders have no influence over monetary policy and their voting rights are restricted. The independence of the bank is guaranteed by the constitution and it would be an unnecessary and large expense to buy out our shareholders.
But political debate within the ANC and its allies has been heated with strong sentiments that the bank should be owned by the government. At its last party conference in 2017 the ANC passed a resolution that this would be done.
Some in the ANC and its allies have more recently made the case for greater intervention by the Bank in the economy, suggesting that it should engage in asset purchases, such as government bonds, to stimulate the economy and bring down the price of government borrowing. This argument has gained increased currency recently as the economy stalls as a result of the Covid-19 pandemic.
Kganyago, who has on a number of occasions set out why he is opposed to large-scale assets purchases by the bank, said that as inflation was not close to negative and there was still room to reduce interest rates further, this would not be an appropriate policy intervention for SA.
Since March, the Reserve Bank has engaged in the secondary bond market on a limited scale with the limited aim of restoring its functionality, after the shock of the pandemic caused the market to freeze, limiting price discovery and causing a spike in government borrowing costs. Since March the purchases took the Bank’s total holdings of government bonds to R38.4bn, which restored the functioning of the market and brought down borrowing costs.
Kganyago said lowering the cost of borrowing through asset purchases was not an objective of the central bank. Debt servicing costs are the fastest-growing item in the budget with 21c in every tax rand spent on debt.
“What we wanted was to get the bond market functioning so the government could continue to fund itself at market-related prices. The view I am taking is that the government borrowing costs did not decline because the central bank was buying government bonds. They declined because the market was beginning to function. The lowered government borrowing costs was a by-product of what we wanted to achieve in the bond market,” he said.
Kganyago said the Bank would “continue to look for stresses in the market so that if we need to intervene we will be able to do so”.
Correction: August 19 2020
An earlier version of this article incorrectly said that government would continue to look for stresses in the market and intervene if needed. It is the Reserve Bank that will do so.
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