Address by Governor Gill Marcus

Address by Governor Gill Marcus to the Ordinary General Meeting of Shareholders of the South African Reserve Bank 8 December 2010

Today is an opportunity for us, together, to consider a very serious overview of where the Bank stands in terms of its internal organisation, its relationship with shareholders, and its role in the South African economy as we move into what will undoubtedly be a very challenging 2011 for the world and South Africa.

In the proceedings so far today we have endeavoured to address the questions you have asked as they relate to the work of the Bank and arising from the Annual Report and Financial Statements. While there are still a number of matters that will be addressed towards the end of the agenda, we trust that the open interaction marks a new beginning in the relationship with Bank shareholders who, in our view, have a vital role to play in ensuring independence, good governance and accountability.

How was Marcus first year?

Transparency and predictability characterised South African monetary policy over the past year of economic turbulence.

Economists say this is to a large extent thanks to Gill Marcus, who on Tuesday celebrates one year as Reserve Bank governor.

"She has exceeded our expectations," said Industrial Development Corporation (IDC) chief economist Lumkile Mondi. "She has made the bank much more open and much friendlier to engagement. She has allowed us to talk much more openly about the inflation targeting environment and about the exchange rate."

Marcus on recent global developments and South Africa

Speech by Reserve Bank Governor Gill Marcus on recent global developments and their implications for South Africa

The global economy is at a crossroads. The world is in the midst of significant change, and the events in Europe are the most vivid examples of how complex and difficult the current environment is. The previous euphoria that the recovery was well underway has now translated into greater caution.

Last week saw an almost synchronised decline in PMIs [Purchasing Managers' Index] around the world, with the slowdown in manufacturing taking place more quickly than previously anticipated.

While some analysts now see a double dip as a likely scenario, even the more optimistic who have retained a positive outlook now have a downside risk built into their forecasts, or greater “fat tail” risks.

Marcus calls for SARB amendment bill to be fast-tracked

Following Finance Minister Pravin Gordhan’s comments last week that the government is to amend the country’s Reserve Bank Act, SARB Governor Gill Marcus yesterday urged the country’s Parliament to “fast track” the South African Reserve Bank Amendment Bill.

This comes amid calls for the nationalisation of the SARB by some of its board members. Marcus said that she would “appreciate it” if  the bill were passed ahead of the Bank’s  annual general meeting, which is scheduled for September, and asked for government to hold public hearings on the bill in “perhaps a slightly shorter time than is normally done”.

Marcus noted that there would be three vacancies that need to be filled at this meeting, and therefore, she would like the process to be governed by the new legislation.

Marcus feels the heat

Reserve Bank governor Gill Marcus, who surprised analysts with a 50 basis point interest rate cut last week, admits she is feeling the heat

"The heat is always there, it's the nature of the job," she said.

Since replacing Tito Mboweni as governor there has been pressure on her by the left to lower the rate. They applauded Marcus's appointment and made it clear they expected the former communist and stalwart of the liberation struggle, to toe the line.

Inevitably, questions are being asked about whether she succumbed to this pressure.

"No," she says firmly. "If the data had not enabled us to do it we would not have done it. There was certainly no pressure in the sense of, 'this is what is expected of you to do and therefore you must do it'."

Marcus springs surprise rate cut

The Reserve Bank unexpectedly cut the repo rate (interest rate) by half a percentage point yesterday, taking its key lending rate to 6,5%, its lowest for nearly three decades.

Lower inflation, subdued economic growth and the negative effect of gains in the rand played a role in the decision of the monetary policy committee (MPC), which took markets by surprise.

However, Bank governor Gill Marcus took pains to dispel speculation that the rate cut was prompted by a clarified mandate letter from Finance Minister Pravin Gordhan last month.

The letter spelled out a range of factors considered by the Bank when it sets interest rates, making clear that it focuses on growth and employment, as well as inflation.

Marcus fights off greedy punters

The Reserve Bank faces a challenge driven by a small group of shareholders trying to make profit at the expense of the national interest, Bank governor Gill Marcus said yesterday.

The government and the Bank said some shareholders were pushing for nationalisation so that they could be paid for their shares.

"The institution faces a challenge, ostensibly lacking in principle and evidently driven by the self-interested profit motive of a very small minority of shareholders," Marcus said in a letter to shareholders, published on the Bank's website. "This small minority does not appear to care about the national interests of South Africa."

The Bank is one of the few central banks in the world to still be owned by private shareholders, a system originally meant to give South Africans a chance to own a small number of shares.

"Profit making should never be a motive for holding shares in the Bank. The Bank is neither designed nor expected to maximise profits," Marcus said.

Shareholders are entitled to appoint half of the board of directors but have no say in the day-to-day operations, or policies, of the bank.

Source: Times Online

Stop Bank ownership debate

Reserve Bank governor Gill Marcus urged a halt yesterday to debate about the ownership of the Bank, calling those behind it greedy and the concept of liquidation "nuts".

She said proposals to pack the Bank's seven-member board with political appointees would "make it a very difficult working environment".

Briefing Parliament's finance committee yesterday, Marcus said the "false debate" about the status of the Bank should stop.

"This is something that is absolutely against the national interest, it is certainly against the interest of the central bank and in my view these people should not be allowed to get currency around it, as if this is real or doable. It is fundamentally against the principles, policies and objectives of the central bank," she said.

Gordhan: Clarification of the Reserve Bank's mandate

The letter concerning the Clarification of the Reserve Bank's mandate to Reserve Bank Governor from Finance Minister, Pravin Gordhan, on 16 February, does not indicate a change to the SARB’s mandate. 

It appears that the Bank will contnue to target inflation while also taking into account growth and employment dynamics.

An extract from the letter is provided:

... As we move into the new fiscal year, I thought it important to reiterate the constitutional mandate of the South African Reserve Bank and indicate how the lessons of the recession and the reality of the aftermath should be taken into account:

1. Section 224 of the Constitution of the Republic of South Africa states:

(1) The primary objective of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic.

(2) The South African Reserve Bank, in pursuit of its primary object, must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the Bank and the Cabinet member responsible for national financial matters.

Marcus happy with rates brief

Reserve Bank governor Gill Marcus has welcomed instructions from Finance Minister Pravin Gordhan to consider growth and employment in setting interest rates.

Gordhan spelt out the nuance he would be looking for in a two-page letter to Marcus this week.

"It's a fine balance that needs to be there and I think this mandate letter sets it out very clearly and it's most welcome," Marcus said.

Zwelinzima Vavi, general secretary of the Cosatu labour federation, told Business Times: "We are extremely disappointed in the statement on inflation targeting."

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