SARB’s new broom Mampho Modise unlikely to sweep out MPC hawks

As the South African Reserve Bank’s monetary policy committee (MPC) prepares to meet this week to decide on interest rates, economists expect the Bank’s newest deputy governor, Mampho Modise, will stick with the committee’s hawkish outlook.

The MPC meeting on Wednesday will be its first since President Cyril Ramaphosa announced that governor Lesetja Kganyago will serve another term and that Modise, deputy director-general for public finance at the National Treasury, was being appointed  deputy governor.

The meeting comes as StatsSA announced that consumer price inflation had climbed from 5.3% in January to 5.6% in February.

Political economist and markets leader at Krutham, Peter Attard Montalto, said Modise has never been “particularly vocal” about monetary policy but she will probably fall in line with other members of the MPC in holding a hawkish view on rates. 

“She has never said much about monetary policy at all, and we think it would be unwise to read too much across from her being famously a fiscal hawk, but ex-National Treasury people generally show up on the hawkish side, so this is the starting assumption,” he said.

Modise was championed for the post by finance minister Enoch Godongwana, who wanted a moderating influence in the overwhelmingly hawkish MPC.

Montalto said Ramaphosa’s decision to keep Kganyago at the helm of the Bank allowed for a smooth succession in 2029, most likely to Fundi Tshazibana, CEO of the Prudential Authority, who is also a deputy governor.

“The strategy to extend his term has been to remove the succession process to Fundi until outside of this political cycle when there is time for it to proceed in a calmer way. In the interim she can be socialised among stakeholders further and is almost certainly the best candidate to take over in 2-3 years,” he said.

She has never said much about monetary policy at all, and we think it would be unwise to read too much across from her being famously a fiscal hawk, but ex-National Treasury people generally show up on the hawkish side, so this is the starting assumption.

—  Economist, Peter Attard Montalto

Ramaphosa’s decision to give Kganyago a new term up to November 2029 does very little to change South Africa’s monetary policy as the governor “will likely be outvoted several times during the cutting cycle and so his uber-hawkishness will not be the baseline for policy”, Montalto said. 

Chief economist at Efficient Group Dawie Roodt said it would take a while before any doveish sentiments on Modise’s part found expression in MPC decisions.

“The new deputy governor at the Reserve Bank will find a bunch of hawks there. I don’t know much about her, so I can’t really say how she will influence the MPC. Anyway, it will take some time before she’s properly settled in.” 

Economists agreed that the decision to keep Kganyago as governor has positioned the Bank to continue inflation-targeting in the coming cycles without political interference.

Roodt said he had a suspicion that Ramaphosa made the announcement well before the end of the governor’s current term, and before the elections, out of concern about the implications of a woeful showing by the ANC on May 29.

“I don’t know what it is, but I’ve got a suspicion that he may be concerned about whether he’s going to be president after elections still; and that he wants to make these sorts of announcements while he still got the power to do that.”

I’ve got a suspicion that he may be concerned about whether he’s going to be president after elections still; and that he wants to make these sorts of announcements while he still got the power

—  Dawie Roodt

Roodt said Ramaphosa had made wise decisions that would protect the central bank and its mandate from potential populism and political interference in the post-election period.

Addressing the Bank of America’s virtual conference and media briefing this week, Tatonga Rusike, an economist at the bank for Sub-Saharan Africa, said fiscal fears had receded ahead of the election and the 2024 budget was more positive than expected, with less deterioration in fiscal targets than originally expected.

“The bank does not believe that there would be a significant policy shift and the bank therefore expects to see the status quo in the fiscal policy and outlook continue.” 

Rusike said the bank’s baseline scenario for the elections outcome was an ANC-led coalition with some of the small parties; also possible was an ANC coalition with  the DA or EFF, with the DA being the more likely partner.

Rusike said all indications pointed to the central bank keeping rates on hold this week with a possible cut on the horizon.

“In our view, we think that rate cuts are still delayed but not yet denied. We started the year calling for cuts in July. We had that view, but the Bank appears to be of the view that it is not yet time to cut,” he said. He forecast inflation would drop this year.

Roodt said there was a view that in response to the latest inflation figures the central bank would keep interest rates unchanged.

Montalto said while inflation coupled with rate hikes made an unpopular combination, Lesetja would be “markedly less popular” if he allowed inflation to run rampant.

“[The Bank] will start a slow cutting cycle from July most likely, as inflation eases and expectations look more anchored... In the grand scheme, debt defaults remain low this cycle and banks remain well provisioned,” Montalto said.