Monetary policy should recognise the social needs

Monetary policy does not operate in a vacuum and policy makers should recognise the social context in which they work, Reserve Bank governor Gill Marcus (pictured right) has said.

In her first public address outside the Bank’s monetary policy committee, Marcus said at a Black Business Executive Circle dinner on Wednesday night that the world and SA were recovering from a very sharp economic downturn. The recovery was fragile, uneven and there were many areas of concern.

Unprecedented monetary and fiscal measures had prevented the global downturn from becoming a depression, and the winding down of these measures would affect the recovery in one way or another.

The US remained in bad shape with unemployment possibly rising to 11% next year from 10,2% now. “They are concerned about jobless growth,” she said.

This was because consumers were the main drivers of the US economy and unemployment would affect the outlook for consumers.

SA did not experience a banking crisis like other countries, and banks in developed countries remained a fragile aspect of the recovery. Much of the fiscal stimulus had gone into shoring up bank balance sheets, and how successful this had been remained open to question.

There remained also significant global imbalances, most notably between countries.

A positive aspect of the crisis was that it had caused investors to see faster-growing emerging market investments in a new light, but there were questions about what would happen if the capital started flowing back into developed countries from the developing country markets.

Marcus said SA’s decision to raise its fiscal deficit was a counter-cyclical act that would fend off the worst of the recession. However, in spite of positive economic progress, SA’s recession had not been benign, with 800 000 jobs lost already.

She said there was much debate about the Reserve Bank’s mandate, targets, the value of the rand and what the Bank could and could not do. The Bank’s mandate was price stability in the interests of sustainable development and growth.

Inflation destroys wealth, with the poor most vulnerable to the ravages of inflation, so price stability was a core function of the Reserve Bank, she said.

She said the Bank remained committed to engaging with stakeholders on these issues, and also on the exchange rate.

“We all want a stable and competitive exchange rate,” she said, and an appropriately valued exchange rate should not be viewed as an isolated panacea for a competitive manufacturing and mining sector.

“We need a society with an alignment of purpose … there are no simple solutions … we will not always take decisions that are popular.”

Source: Business Day