SA Reserve Bank's mandate must expand

South Africa’s governing ANC wants to broaden the central bank’s mandate to ensure it plays a bigger role in supporting the economy, a change that may require a constitutional amendment it won’t be able to effect on its own.

"The mandate of the Reserve Bank has to be expanded to meet the needs of the economy," Gwede Mantashe, the chairman of the African National Congress, said in an interview in the central city of Mangaung on Friday following the conclusion of the party’s national conference. While the decision had been taken in principle, more detailed discussions are needed before constitutional amendments are submitted to parliament, he said.

The ANC’s proposal comes as the economy struggles to recover from the coronavirus pandemic and an ongoing electricity supply crisis that’s curbing output. The South African Reserve Bank implements its inflation-targeting mandate in the interests of balanced and sustainable growth and has repeatedly said obstacles to bolstering economic growth fall outside the scope of monetary policy.

A vote to change the bank’s constitutional mandate would require approval from two thirds of lawmakers. The ANC only controls 58% of seats in the National Assembly, meaning it would need backing from opposition parties to push through any amendments. The opposition has stymied previous attempt by the governing party to change the constitution to make it easier for the state to seize land without compensation.

While the Economic Freedom Fighters, the third-largest party, agreed with the ANC on the need for the SARB’s mandate to be changed, the governing party won’t make concessions to the opposition in exchange for their support to amend the constitution, according to Mantashe.

"You have a proposal, you take it to parliament and you mobilise other parties and if they want they come. If they don’t want to then they don’t," he said. "We are not going to rush for it because we are desperate."

The ANC has tried to make changes at the SARB before. It decided in 2017 that the government should take ownership of the privately owned bank, but the process — which requires a change to the Reserve Bank Act and an agreement on the price of shares — has stalled.

Institutional strength

The central bank is seen by investors, business and ratings companies as one of few pillars of institutional strength in an economy hollowed out by state graft during former President Jacob Zuma’s rule. A 2017 proposal by now-suspended graft ombudsman Busisiwe Mkhwebane to change the bank’s constitutional mandate and curtail its independence sparked concern before it was blocked by the courts.

Finance Minister Enoch Godongwana may alternately seek to appease members of his party by stressing the need for flexibility in policy making to Reserve Bank Governor Lesetja Kganyago.

Former Finance Minister Pravin Gordhan said in a 2010 letter to then-Governor Gill Marcus that monetary policy should be conducted in a flexible manner and that temporary deviations of inflation from the target are allowed when there are price shocks. Though the instruction was touted as a "new mandate," analysts saw it as an affirmation of the central bank’s work.

The Reserve Bank raised interest rates six times last year to counter the biggest global inflation shock in a generation, drawing criticism from labour groups and some politicians who’ve said it should do more to support South Africans and the domestic economy. Kganyago has repeatedly said price stability is sacrosanct and has referred to inflation as a regressive tax that increases poverty and inequality.

South Africa needs to consider central bank models in other countries "and study alternatives that we think will be suitable for our own situation," Mantashe said.-Fin24