SARB outreach programme

South African Reserve Bank chief economist, Dr Monde Mnyande, yesterday reiterated previous communication made by a number of SARB officials that it should not be expected to solve all of the economic problems of South Africa. Mnyande made reference to the SARB’s outreach programme launched in December last year which aims to provide stakeholders (labour, organized business, the top 20 JSE listed companies that report to non-resident investors, to name a few) with a better understanding of the Bank’s role and its mandate. He said that the outreach programme was a positive in the sense that “when things are communicated and the logic behind what the Bank does is explained and debated, the stakeholders become less antagonistic towards the Bank”.

According to Mnyande, these outreach programmes will continue to endeavour to contribute to the “national debate” in anticipation of “coherent and implementable economic policy strategies”.

Observations on interest rates in South Africa

Presentation by Dr Monde Mnyande, Advisor to the Governor and Chief Economist, South African Reserve Bank, to the Ombudsman for Banking Services, 22 April 2010

Most borrowers and savers would benefit if interest rates do not fluctuate excessively. Stable interest rates would bring greater certainty to the finances of savers and borrowers and assist them with planning. This is not to deny that some persons and institutions, such as those actively trading interest-bearing debt securities and interest rate derivative instruments, may prefer a fairly volatile interest rate environment. But for typical economic agents this is not the case.

Furthermore, from a cash-flow point of view it is also helpful if nominal interest rates are lower rather than higher. In this matter, however, sustainability is important: a very low interest rate environment which cannot be sustained and has to make room for a high interest rate environment is extremely damaging, particularly to borrowers.

Lower nominal interest rates can only be sustained if inflation is kept in check. Otherwise negative real interest rates will result as inflation accelerates with low nominal interest rates being maintained. Negative real interest rates are damaging to the economy, not least since such rates cause savers to subsidise borrowers, thereby undermining saving.

Relevance of the SA Reserve Bank to the development agenda

Address by Dr Monde Mnyande, Advisor to the Governor and Chief Economist, South African Reserve Bank (SARB), at the Inkululeko Media & Marketing Power Breakfast, Avianto Hotel, Muldersdrift,
09 April 2010

Stable prices, that is, low inflation, stable currency value and stable financial systems are bedrock ingredients for the economic wellbeing of any society. These ingredients form the core of what the South African Reserve Bank or any other central bank for that matter does. Explained differently, the realisation of these ingredients is the most important way in which the Bank can contribute to the developmental agenda of South Africa.

... The Bank's mandate is explicitly set out in the Constitution of our Republic as “protecting the value of the currency in the interest of balanced economic growth”. The main contribution therefore that the Bank can make to the development agenda of South Africa is primarily through the fulfilment of this mandate. The Bank fulfils this mandate by ensuring 1) price stability and 2) financial stability. To ensure price and financial stability, the Bank uses monetary policy and provides a variety of other essential financial services to the economy.

The mandate of the South African Reserve Bank reiterated

An extract from the remarks by Dr Monde Mnyande, Advisor to the Governor and Chief Economist of the South African Reserve BankBank, presented at the Leadership Forum of Airports Company South Africa on 12 March 2010

On 16 February 2010 government clarified and extended the mandate of the Bank. The Minister of Finance’s open letter (see our previous post) to the Governor of the Bank noted the constitutional objective of the Bank. The Bank’s primary objective is to protect the value of the currency in the interest of balanced and sustainable growth. It was also confirmed that the Bank should continue to pursue a target of 3 to 6 per cent for headline consumer price inflation, and should do so within a flexible inflation-targeting framework.

The letter reaffirmed the flexibility afforded the Bank in reacting to current and expected supply-side shocks. The flexible inflation-targeting framework involves a focus on a medium-term time horizon in getting back to the target if the economy experiences an inflation shock, thereby avoiding unnecessary instability in output and interest rates.

Shareholders do not control the South African Reserve Bank

An extract from the remarks by Dr Monde Mnyande, Advisor to the Governor and Chief Economist of the South African Reserve BankBank, presented at the Leadership Forum of Airports Company South Africa on 12 March 2010

There has been much discussion in the media about the private shareholders of the South African Reserve Bank following on comments by the Secretary-General of the Governing Party Mr Gwede Mantashe. There still appears to be a lot of uncertainty notwithstanding a press release by the Bank on 25 January 2010 to clarify the matter.

To put my remarks in perspective, the central banks of, among others, Italy, Japan, Pakistan and South Africa, are institutions with shareholders other than their respective governments. The Bank is an institution created by statute, with the status of an independent legal person, which may not be liquidated other than by an Act of Parliament. Its independence is entrenched in the Constitution and it is not owned by anyone but by South Africans. In that sense it belongs to the country as a whole and control of the SARB is exercised between its shareholders and Government in a manner whereby the latter, in normal circumstances, may exercise ultimate control over the SARB. Furthermore, the SARB Act does not grant shareholders any authority to remove directors. By virtue of the fact that the Bank is a statutory institution, the shareholders are also unable, by means of a resolution or otherwise, to amend or change the Bank’s constitution.

Hope for a more proactive Reserve Bank

Senior Reserve Bank officials and Monetary Policy Committee members Monde Mnyande and Brian Kahn have been appointed advisers to Bank governor Gill Marcus with effect from today.

Dr Mnyande, pictured right, will be responsible for establishing an outreach programme for the Bank to interact with stakeholders across the broad spectrum of South African society. He is also appointed Head of the Research Department and remains Chief Economist. Mr Kahn will be adviser responsible for economic developments.

Following recent statements by the ANC and its Alliance partners, COSATU and the SACP, it has become important that the Reserve Bank becomes more open and seriously debate its mandate with the public.

Aspects which need to be discussed include: 

• Monetary policy and inflation targeting 
• Promotion of economic growth and employment 
• Exchange rate intervention, eg to stimulate exports