A perfect storm is building around SA Reserve Bank governor Lesetja Kganyago, and I wonder if he can see it. While he stands secure behind the walls built by the constitution, trouble is brewing outside.
First there is the obvious stuff of toxic politics. The manipulation of the official ANC post-lekgotla statement last Tuesday to cast doubt on the governing party’s stance on the central bank and monetary policy has been neutralised for now. But the toxic politics is a reality that is not going away and the central bank is an easy target because it is contested terrain in the ANC. Every opportunity will be exploited. In the midst of the fracas Kganyago was reported as saying that “the barbarians were at the gates of the SARB”.
Second, last week’s scrap over the central bank did not occur in a vacuum. It happened in an environment in which the left of the ANC has for 25 years voiced political and ideological objections to the government’s chosen monetary policy regime. With some help from the toxic faction, this is exactly what happened at the ANC lekgotla, where both a Jacob Zuma ally — Mzwandile Masina — and the SACP’s Solly Mapaila spoke in favour of widening the bank’s mandate. These are the normal politics of the ANC. They are also not going away.
After several hours of chaos following the release of the doctored ANC statement, the ANC’s head of economic policy, Enoch Godongwana, stepped in and issued his own statement. While Godongwana says he was just restating policy, the language of the statement showed a clear intention to shut down the debate.
The constitution prescribed independence for the central bank, said Godongwana, and set its “primary” mandate “to protect the value of the currency in the interests of balanced and sustainable economic growth”. The Public Finance Management Act gives the finance minister powers to co-ordinate macroeconomic policy — both fiscal and monetary policy — he continued.
He then reminded everyone of the February 2010 letter that then finance minister Pravin Gordhan wrote to then governor Gill Marcus when the debate over monetary policy had reached fever pitch in the ANC alliance. The letter, Gordhan said at the time, “expanded” the mandate of the Reserve Bank and suggested that while an inflation target was in place, this was “flexible” and factors such as employment would be taken into account.
This, said Godongwana, had resolved things. “The debate about the mandate of the Bank was therefore closed from that date. There is no decision to expand its mandate,” he said in his statement.
But the fact is that the debate has not been had. It has never been clear to what extent the central bank takes broader factors other than inflation into account when deciding on interest rates. In 2010 the letter caused confusion. Neither the markets nor the trade unions were convinced the mandate had in fact been “expanded” or that much had changed. Those who believed the mandate already took wider economic factors into account continued to believe it. Those that didn’t, believed the opposite.
On every occasion on which the mandate of the central bank has arisen the ANC has typically fudged its position. At the 2017 ANC conference the resolution said the same as five years earlier: “SA requires a flexible monetary policy regime … Without sacrificing price stability, monetary policy should also take account of other objectives such as employment creation and economic growth.”
This allowed ANC moderates to read it one way and the left another. To looters it was an ambiguity into which a wedge could be driven.
A third dynamic is adding to the building storm. Resentment is rising in the labour movement, ANC and the government over the Reserve Bank’s hawkish interpretation of monetary policy. While the moderates in the ANC are publicly constrained from saying so, they are intensely frustrated. While they believe the interest rate stance could be much more flexible, they are nonetheless in a position where they must now defend the bank.
More broadly, even conventional economists have begun to question whether the bank is getting it right as growth falls and companies take disinflationary actions. While Godongwana’s statement claimed that the Bank already takes employment into account and that the 2010 letter had put to rest that controversy, the reality is that the monetary policy committee is no longer flexible in targeting the 3%-6% band and now targets the mid-point.
Kganyago’s reappointment comes up in November. There is no reason to believe Mboweni won’t reappoint him. But he has made himself a target so we can expect a toxic ruckus. Kganyago is right: the barbarians are indeed at the gate. But he should take care as they have others with them.
• Paton is writer at large.
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