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A lack of trust, policy coherence and political infighting that’s hindering efforts to get reforms off the ground are among the issues that keep the South African Reserve Bank’s Monetary Policy Committee (MPC) members up at night.
On Thursday, the seven-member committee held its key interest rate at a two-year low of 6.5% as SA’s economy struggles through a recession and as policymakers warned investor sentiment toward emerging markets remains a risk to the currency and adds to inflationary pressures.
Three of the MPC’s seven members voted to increase the rate by 25 basis points, a deviation from the previous meetings in July and May where the decisions to hold were unanimous.
The SARB sees inflation remaining within its target range of 3% to 6% until 2020, with average CPI of 4.8% in 2018, 5.7% in 2019 and 5.4% in 2020, it said in its monetary policy statement on September 20.
Daniel Mminele:
Daniel Mminele is the deputy governor for markets and international economic relations and policy.
“What does worry me, in terms of needing to control inflation and the value of the rand, is that there doesn’t seem to be an understanding or willingness to pull in one direction,” said Mminele.
“We are a small, open economy that is plugged into the global economy and that is akin to sailing on the great ocean in a small boat. We have basically decoupled from the global economy,” with South African gross domestic product growth lagging that of the developed world, he said.
“All of this play into social cohesion; it’s no surprise that we’ve seen the tensions that are arising in society. We used to count ourselves as fortunate to have a young population,” but they are not appropriately skilled. “We have a shocking lack of a sense of urgency.”
Brian Kahn:
Brian Kahn was an MPC member and an adviser to SARB governor Lesetja Kganyago - Kahn’s final MPC meeting was on September 20.
“There just doesn’t seem to be any policy coherence, there doesn’t seem to be commitment to follow a clearly coordinated path. This is the big challenge we’ve seen in the last 10 years from policy-making previously when there was a lot better coordination,” commented Kahn.
“Private-sector investment of the last five years has been on a very strong downward trend. It’s a question of getting that investment back, and you’re not going to get it going as long as you’ve got that uncertainty.”
With reference to plans to introduce a new Mining Charter Kahn said "the problem is there may be a lot of damage that’s already been done, that even if it is a good charter, and it creates confidence, are people going to say, ‘is this now the end of the story?'"
Fundi Tshazibana:
Fundi Tshazibana is an MPC member and adviser to the governor.
“Administered prices such as telecommunications costs and port charges add to the prices of goods and these are among the things that require a sense of urgency,” said Tshazibana.
Education has a type of cost “that’s not always visible,” she added.
“We aren’t educating for our needs. We’re actually contributing to the skills premium.”
Kuben Naidoo:
Kuben Naidoo is the deputy governor and chief executive officer of the Prudential Authority.
“The basis to build trust is lost. Without trust there is no growth. If the economy grows at 5%, it will take 30 years growing at that rate to get to full employment and no poverty. There are no short cuts. But because the society is so unequal, and the distribution of benefits is so skewed, there is a risk that this will be undermined,” said Naidoo.
“You’re in a constant Catch 22: inequality is so high, and trust is so low, you can’t get a level of growth to build trust. This leads to populism,” or leads people to believe dictatorship will work."
Rashad Cassim:
Rashad Cassim is an MPC member and head of the SARB’s economic research and statistics department.
“One of the real problems is the political constraints to getting economic reform going. For example, do you have a bold government who could put a wage restraint on public-sector wages? And I think, that’s really the obstacle we have, is the extent to which government can take on the politically binding constraints to make decisions that are not populist but may come at some political cost, and that’s really the bottom line," said Cassim.
"There’s this polarisation in economic policy. At one level there’s a view that you can’t have pro-market kind of reform because it’s anti-distribution. On the other hand, you need this distribution, whatever the implications for the market.”
Francois Groepe:
Francois Groepe is the deputy governor looking at financial stability and the rand.
“There is a disquiet among the masses because of the unequal distribution of benefits,” said Groepe.
“We have lost our ability to have dialog. Unless you do this, you can’t reach consensus. If we can’t get that, we will spiral further or move sideways.”
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