Standard Bank CEO Sim Tshabalala has defended the Reserve Bank’s mandate less than a week after the ANC proposed changing it on the grounds that it does not sufficiently take into account the effect of monetary policy on economic growth.
In an interview with Business Day last Wednesday, the head of Africa’s biggest bank by assets said while debate about the central bank mandate was “legitimate”, claims it did not sufficiently consider economic growth and employment were “wrong”. Tshabalala dismissed what he called “moral panic” about the central bank mandate, adding that section 224 of the constitution already tasked the Reserve Bank with ensuring sustainable economic growth.
“I welcome the debate but I think people who are saying change the mandate of the Reserve Bank [and] nationalise it … are, with respect, wrong,” said Tshabalala. “It’s legitimate for people to raise the question given high interest rates but it is not necessary to make the changes people are arguing for because it’s already contemplated in Section 224 [of the constitution].”
Tshabalala’s comments come after ANC party chair Gwede Mantashe argued that the Bank’s mandate be “expanded to meet the needs of the economy” according to January 6 comments. Finance minister Enoch Godongwana was also quoted by Bloomberg on January 12 as saying the ANC wants employment creation to be included as part of the Bank’s mandate.
However, any plans by the ANC to change the Bank’s mandate would require constitutional amendments to be passed by parliament, which in turn would hinge on support from opposition parties given that the ruling party lacks the two-thirds parliamentary majority needed to effect the change. The ANC has only 57.5% of seats in the National Assembly, a number that may drop further after the 2024 general election given that support for the party is waning after years of state capture.
Moral panic
While the Reserve Bank follows an inflation targeting policy that empowers it to use interest rates as a tool to keep price growth at 3%-6%, its primary mandate is to protect the value of the currency in the interest of balanced and sustainable economic growth. That is in line with section 224 of the constitution which also states that the Bank must, in pursuit of this primary objective, perform is functions “independently and without fear, favour or prejudice”, though it must have regular consultations with the finance minister.
“The Bank mandate is in section 224 of the constitution,” said Tshabalala. “It’s an ideological debate and often people don’t go to the source documents to try tease out what they’re about. It’s an important debate to have but we don’t need to have moral panic.”
Tshabalala also defended the Bank’s decision to hike interest rates by a cumulative 325 basis points in 2022, taking borrowing costs to the highest level in more than five years in an attempt to rein in above-target inflation. While consumer inflation has eased from the 13-year high of 7.8% reached in July 2022, some analysts still expect the Bank to institute at least one more 25 basis point hike in January before ending its rate-hiking cycle.
“They’ve done a job that is among the best in the world by front-loading interest rate hikes and acting in a way that is orthodox,” Tshabalala said of the Bank’s performance in 2022. “They were textbook in what they have done with the result that while the world is contemplating aggressive interest rate hikes ours will not be too aggressive going into 2023.”
Increase aggressively
While Standard Bank’s house view is that the Bank will institute one more 25 basis points rate hike in January, Tshabalala said under a hawkish scenario, rates could be hiked by as much as 75 basis points in January and possibly a further 50 basis points in March.
“This is very hawkish,” said Tshabalala. “[But] if inflation in the world continues to increase and the US Federal Reserve continues to increase aggressively we are also going to have to increase aggressively.”
Tshabalala also commented on the contentious issue of proposals to nationalise the Reserve Bank, which is one of the few central banks globally that has private shareholders.
“Whether a central bank is privately owned or owned by the state for me is neither here nor there — what matters is its mandate,” he said. “If the authorities were to decide to nationalise it, in that sense it would have to be done in a way that is not expensive. That makes reference to what some of the current shareholders would be hoping for — a windfall.”
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