Reserve Bank changes to keep economy afloat are dead in the water

COLUMN

In the era of stubbornly high inflation and amid the sting of rising interest rates, it is no wonder that the role of central banks has come under such scrutiny.

In the United States, the Federal Reserve fielded fierce criticism last year for its dithering over inflation, which saw it having to hike interest rates more aggressively and inflicting more pain on consumers. 

Why did the Fed take so long to act on inflation, seeing it risk a recession? One reason is linked to that central bank’s mandate, which charges it with maintaining price stability and with pursuing maximum employment.

In South Africa, our central bank has also faced scrutiny, though for a different reason — the fact that it does not have an employment mandate. It is on this basis that the South African Reserve Bank’s role and ownership structure has been the subject of debate within the ANC for some years now.

Although the proposal to nationalise and change the Reserve Bank’s mandate is one of the more forward-thinking made by an otherwise more ambivalent governing party, there is little chance it will come of anything. This is as the state continues to lean on microeconomic reforms to the detriment of any robust analysis of the available alternatives.

The proposal to broaden the Reserve Bank’s mandate, in the hopes of shoring up the country’s struggling economy, cropped up again at the ANC’s 55th national conference in December.

In its organisational report, the party called for a more “flexible monetary policy”, noting: “The monetary policy regime followed in South Africa has been more restricted to narrow inflation targeting, with rising inflation and higher interest rates making life more difficult for consumers and SMMEs [small, micro and medium enterprises] in particular. Linked to employment targeting, monetary policy must actively support the development of domestic productive capacity, to advance industrialisation.”