South Africa’s ruling ANC wants to expand the central bank’s mandate to ensure it plays a bigger role in supporting the economy, a change that may require a constitutional amendment that it cannot effect on its own.
“The mandate of the Reserve Bank must be extended to meet the needs of the economy,” Gwede Mantashe, president of the African National Congress, said in an interview in the central city of Mangaung on Friday after the conclusion of the party’s national assembly. conference. While the decision was made in principle, more detailed discussions are needed before the constitutional amendments are tabled in parliament, he said.
The ANC proposal comes as the economy struggles to recover from the coronavirus pandemic and an ongoing electricity supply crisis that is curbing production. The Reserve Bank of South Africa implements its inflation targeting mandate in the interest of balanced and sustainable growth and has repeatedly said that obstacles to boosting economic growth are beyond the reach of monetary policy.
A vote to change the bank’s constitutional mandate would require the approval of two-thirds of lawmakers. The ANC only controls 58% of the seats in the National Assembly, meaning it would need the backing of opposition parties to push through any amendments. The opposition has stymied the ruling party’s earlier attempt 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 to change the SARB’s mandate, the ruling party will not 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 mobilize other parties and if they want they come. If they don’t want it, no,” he said. “We are not going to rush because we are desperate.”
The ANC has tried to make changes to the SARB before. It decided in 2017 that the government should take over the privately owned bank, but the process, which requires a change to the Reserve Bank Act and a share price deal, has stalled.
The central bank is seen by investors, businesses and rating companies as one of the few pillars of institutional strength in an economy undermined by state corruption under former President Jacob Zuma. A 2017 proposal by the now-suspended ombudsman Busisiwe Mkhwebane to change the bank’s constitutional mandate and reduce its independence raised concerns before it was blocked by the courts.
need for flexibility
Finance Minister Enoch Godongwana may alternatively seek to appease his party members by emphasizing the need for flexibility in policymaking 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 target are allowed when there are price shocks. Although 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 labor groups and some politicians who said it should do more to support South Africans and the economy. national. Kganyago has repeatedly said that price stability is sacrosanct and has referred to inflation as a regressive tax that increases poverty and inequality.
South Africa needs to look at central bank models in other countries “and study alternatives that we think will be suitable for our own situation,” Mantashe said.
–With the assistance of Rene Vollgraaff and Khuleko Siwele.
