Cosatu's demands to ANC

Trade union federations wants gold mining companies nationalised, tightening of foreign exchange rules, says Reserve Bank should resist rand appreciation and states the SARB's primary role should be job creation

Cosatu called on Tuesday for a reversal of measures taken to relax exchange controls and for taxes on short-term capital flows.

The positions laid out in an economic policy paper put pressure on the ruling African National Congress to reconsider its foreign exchange and economic policies when it holds a major strategy setting session next week.

"Due to relaxation of capital controls, (company) profits were repatriated in the form of dividend payments ... The outflow of funds increased South Africa's dependence on short-term capital flows to finance expenditure," it said.

South African Reserve Bank Amendment Act

The South African Reserve Bank Amendment Act, 2010 (Act 4 of 2010) was published on 13 September, 2010. It will:

amend the South African Reserve Bank Act, 1989, so as to provide for the amendment of certain definitions, the insertion of new definitions and the deletion of a definition; to provide for the establishment of a Panel for the election of directors to the Board and the functions of the Panel; to reinforce the requirements regarding the limitation on shareholding in the South African Reserve Bank and to prevent the abuse of those provisions; to provide for the nomination of directors by a broader base of the South African public and to broaden representation on the Board of the South African Reserve Bank; to define clear criteria regarding when persons are disqualified from serving on the Board; to provide for the confirmation of Board nominees against "fit and proper" and fiduciary criteria; to clarify the powers and functions of the Board; to provide for the possibility of the Governor and Deputy Governors being re-appointed to serve terms of office of less than five years; and to provide for matters connected therewith.

SA Reserve Bank: Statement of the Monetary Policy Committee

The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas declined to 3,7 per cent in July 2010, compared with 4,6 per cent in May. Goods price inflation measured 2,1 per cent in July, while services inflation, which had been relatively sticky, declined to below the upper level of the target range and measured 5,4 per cent. The categories of housing and utilities (mainly electricity) and miscellaneous goods and services (predominantly insurance costs) together contributed 2,2 percentage points of the 3,7 per cent inflation outcome. However, electricity price increases were lower than expected. There was also a quick reversal of the influence of the Fifa World Cup on some categories. This was particularly noticeable in the category of hotels which experienced a month-on-month price decline of 11,2 per cent. CPI excluding administered prices measured 2,9 per cent ie below the lower limit of the inflation target band.

A forward-looking SARB

FNB Rex Column, by Cees Bruggermans

This coming week, the challenge for the SARB will be more than ever to be forward-looking and acting.

According to Governor Marcus, the SARB mandate is wider than only inflation targeting and includes the state of the economy and employment.

Regarding inflation targeting, the expected trajectory of inflation will be centrally in focus, not recent lows.

Then there is the state of the economy and employment.

World's top banks fighting regulation

Top executives from some of the world's leading banks are due to gather for a conference in Frankfurt later this week to try to forestall what they see as overly harsh regulation brought on by the global financial crisis.

Existing rules failed to ensure that banks held enough capital and liquidity to withstand the crisis, forcing governments to bail out lenders with taxpayers' money.

Regulators have been moving to put banks on a shorter leash - a set of rules, called "Basel 3" - with decisions likely to be made by November.

But banking executives argue that a regulatory crackdown on banks could cut 3% off economic growth over the next five years in the US, the euro zone and Japan, and cost almost 10 million jobs.

Two years after the collapse of Lehman Brothers heralded the global financial system's breakdown, chief executives at Morgan Stanley, Unicredit and Commerzbank are expected to try to convince the audience at the "Banken im Umbruch" conference that they have done their work to stabilise their banks and should not be thrown back by new banking rules.

Banks' results have improved vastly this year, as provisions for bad loans dropped due to an improved global economy. But the sustainability of profits is still in doubt amid some fears of a "double-dip" recession.

Source: Reuters

SARB Governor says bank foreign ownership difficult

Foreign ownership in South African banks was a difficult question and needed careful consideration, central bank Governor Gill Marcus said on Thursday.

"In South Africa, it's more complex. We have ownership that's mixed. Mixed ownership of banks does have risks.

"It does create a situation of complexity and that needs careful consideration in my view," she told businesspeople in Soweto.

She said the central bank's mandate was wider than inflation targeting and they also had to take growth and employment into account. - Reuters

Source: Business Report

Taylor's Rule for calculating prime interest rate

Taylor's Rule Estimating where interest rates should be. According to Taylor's Rule, the Prime Interest Rates should currently be : (a)   "neutral" Real Prime Rate                                                                          5.5%         (average September 1989 - July 1995; 1999 - 2007) (b)    Expected CPI inflation: 3Q 2011                                                               5.0% (c)      0.5 x (Current CPI - CPI  "target")                                                            -0.4%          = 0.5 x (3.7% - 4.5%) (d)     0.5 x (Output "Gap")         = 0.5 x (-2.2%)                                                                                            -1.1% Target Prime Interest Rate:                                                                                 9.0% Current Prime Interest Rate:  01 September 2010                                               10.0% Comment:   The current outlook for inflation and the slow recovery in the economy could still mean another 0.5% interest rate cut this month, prime falling to 9.5%, according to a simple Taylor rule.  By Cees Bruggemans, Chief Economist FNB

Stringent controls in Postbank bill

Parliament’s communications committee has introduced stringent controls into the Postbank Amendment Bill to ensure the government’s first venture into individual retail banking does not suffer the corporate governance lapses that have characterised several other state-owned entities.

Committee chairman Ismail Vadi said the committee is aware of the potential for disaster within the bank if things go wrong.

The committee has finalised its deliberations on the bill, which proposes to establish the Postbank as a wholly owned subsidiary of the South African Post Office, with powers to raise funds for its new lending activities.