It was said with the tongue firmly in the cheek.
When it was confirmed that Dondo Mogajane wasn’t staying on as director-general of the National Treasury, I wondered if he would be joining the Reserve Bank. After all, the monetary policy committee (MPC), which decides on interest rates, has been crying out for some strengthening for a number of years. And that’s not a reflection on the ability of its current members.
According to the Bank’s website, the committee may have up to seven members, with the governor supported by three deputies and senior officials. The last person to join the ranks was Chris Loewald in 2019, taking the number to six. It was soon down to five as Daniel Mminele’s term as one of the deputy governors ended.
He would later have a short but lucrative stint as Absa CEO. For the last time the MPC had seven members, one would have to go back to before the retirement of Brian Kahn in September 2018.
The section of the Bank’s website referring to the composition of the MPC no longer says why the full number would be preferable, having previously explained how this enriched debate by having diverse voices. Mogajane may have been a perfect addition, though the brain drain from Treasury to the Bank over the years may not be something to celebrate.
Of the five members, only Rashad Cassim hasn’t had a stint at the Treasury.
While recent voting patterns would refute the idea that the smaller number leads to group thinking, it’s unsatisfactory that one person out of five could be the difference one way or the other, especially in these uncertain times that require more intellectual vigour and diversity of thought. Analysts would probably argue that it makes it harder to read the Bank’s next steps.
The Bank has had to navigate unprecedented challenges, such as the aftermath of the Covid-19 outbreak and the global debate about whether inflationary pressures from opening economies after the harsh lockdowns of 2020 were transitory or permanent. It now has to deal with the impact of the Russian invasion of Ukraine on the global economy and whether it should respond to the inflationary pressures by being more aggressive in raising interest rates.
While nothing the Bank has said indicates an out-of-control inflation spiral in SA, there seems to be a growing consensus that it should follow whatever the US Federal Reserve does, with the latter set to increase the pace of rate increases, and to reduce its balance sheet in a quantitative tightening process.
No-one seems to be arguing that the approach pursued by the European Central Bank (ECB) might be more in line with the second part of the Bank’s mandate, which reads protecting the currency’s value has to be done “in the interest of balanced and sustainable economic growth”.
In a chat with an economist last week I was told that the MPC’s latest statement made no reference to unemployment, the biggest crisis facing the country. Of course one person could still have a decisive vote if the Bank had seven, or 11, or 21 members.
Journalists have largely stopped asking the question, but when it used to be raised, governor Lesetja Kganyago would acknowledge that the Bank was looking for additions to the MPC. Given the current makeup, he had also expressed a preference to find a woman. Deputy governor Fundi Tshazibana is the lone woman of the five MPC members.
The last time I remember it being asked, Kganyago said a candidate had been identified but the appointment had fallen through.
So what is international best practice? The Bank of England has nine members. In one of Europe’s most diverse countries — something you can easily see by just observing (before Covid-19) the bankers from London city institutions filling up pubs at lunchtime, its national sports teams and even its cabinet — the central bank isn’t too concerned about diversity. All its MPC members are white and the only two women are external members rather than staffers.
But overall, the trend seems to be for more brains.
In the US, the federal open market committee has 12 voting members. The ECB sets policy for 19 countries that share the euro, each of which have their own central bank and whose governors sit on the governing council. They join six members of the executive board. Fifteen members have a vote, with the governors of the different banks taking turns.
Back when I used to write on European markets, then ECB president Jean-Claude Trichet used to make the point that the central bank was setting policy for more than 300-million people across Europe. Now, Lagarde’s bank does so for almost 450-million, from Germany to Malta.
Perhaps a point could be made that SA doesn’t need so many people debating its interest rate policy for 60-million people. But not if you look at Australia, where a nine-person board sets policy for about 26-million people. For a country that’s renowned for its macho culture, it also wins on gender diversity, with the majority of policy-making board women. New Zealand, with 5-million people, has more MPC members than SA, at six.
It’s hard to know for sure if the MPC would come to a different conclusion if it had more members, but for a country that likes to benchmark itself against international practice, the evidence would indicate that this wouldn’t hurt.
SA has also never given a convincing argument against the use of external members, which the Bank of England says have ensured that it “benefits from thinking and expertise from outside”.
The history of state capture probably rules out the Australian approach, in which the government has a seat on the policy-setting board and appoints its members. It doesn’t bear thinking of this scenario during the Jacob Zuma presidency.
For an optimal policy outcome, it might be that more is better for the MPC, and Kganyago needs to dust off the plans to deliver it more brainpower.
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