The custodians of SA’s economy scrambled on Wednesday to limit the fallout from ANC statements that the finance minister described as reckless and a danger to the country’s reputation among investors.
In a barely disguised rebuke of ANC secretary-general Ace Magashule, Tito Mboweni said it was “painful” to see efforts to stabilise the country’s finances being undermined, while Reserve Bank governor Lesetja Kganyago warned against beating an economy that’s already “on its knees”.
They were speaking a day after the rand took a beating as markets were spooked by Magashule’s statement the previous day that the party had agreed to expand the mandate of the Reserve Bank “beyond price stability" and to direct the government to consider a policy of quantitative easing.
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Kganyago said the issue of the mandate of the central bank was a “non discussion” and was being used as a “Trojan horse”.
Tuesday’s statement sparked a rand sell-off that carried into Wednesday, with SA’s currency dropping 1.5%, the worst among 31 major currencies tracked by Bloomberg, to R14.88/$ by 5.50pm. Since May 10, the last trading day before the election results were released, the rand is down almost 5%. The second-worst performer, the Mexican peso, has lost just over 2%, signalling that the mixed policy messages are harming confidence in SA.
“Trust has been reduced, but from an international perspective Mboweni’s words are taken more seriously,” said Simon Harvey, an analyst at Monex Europe in London.
Speaking at the launch of new commemorative coins by the Bank to mark the country's 25th year of democracy, Mboweni outlined steps taken at the end of apartheid to stabilise government finances and gain market credibility.
“Nobody is talking about changing the mandate of the Reserve Bank. This is clearly stipulated in the constitution. I don't understand why the obsession about the central bank all the time,” Mboweni said. “Why say things that destabilise the market?”
The Bank has become a proxy war between elements in the ANC backing Ramaphosa and those associated with his predecessor Jacob Zuma, leading to the issuing of misleading and contradictory statements about its role and whether the government should buy out its private shareholders.
Ramaphosa has at times sought to appease the Zuma faction, drawing criticism in March when he said nationalising the Bank would give the country “sovereignty” even though there’s no relationship between its ownership and the conduct of monetary policy. He hasn't commented on the latest controversy.
Kganyago said conditions for adopting quantitative easing, under which central banks print new money and inject liquidity into an ailing economy by buying assets such sovereign bonds, did not exist in SA.
“Inflation must be so low that it threatens to go beyond zero. Interest rates must be so low, borrowers and savers no longer care where interest rates are. Only then would it be justifiable for a central bank to explore measures like quantitative easing,” Kganyago said.
“What you can’t do is beat an economy that’s on its knees” and think that will produce jobs, Kganyago said. “Jobs are an outcome of economic growth.”
The ANC bombshell on Tuesday came just hours after the release of data showing the economy had contracted in the first quarter by the most since the depths of the global financial crisis a decade ago.
A few hours after Magashule’s announcement, the ANC's economic transformation subcommittee head Enoch Godongwana said it was “inaccurate” that QE was on the ANC agenda or that the party wanted to amend the Bank’s mandate.
Economists say the intervention by the ANC’s heavyweights might not be sufficient to counter negative perceptions .
Independent economist Thabi Leoka said Magashule’s comments took the country back to the Zuma era where policy uncertainty and inconsistencies were the norm.
“He further confused the markets with his comment on quantitative easing, which implies, among other things, printing money. It quite clear that the government and Luthuli House are not aligned,” Leoka said.
“Changing the mandate of the Reserve Bank requires amending the constitution, which (Magashule) did not mention. This begs the question, does he actually understand the role of the Reserve Bank? If this is a sign of things to come, then SA is in trouble,” she said.
With Karl Gernetzky
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