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.

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.

SARB changes could affect SA’s ratings

A change in the mandate of the South African Reserve Bank, allowing it to move away from inflation targets, could affect South Africa’s sovereign ratings, Standard & Poor’s* said yesterday.

But the ratings agency said in a report that economic policies were unlikely to shift away from a previously prudent stance – a key risk to its ratings – despite the increased influence of more leftist leaders.

S&P said South Africa’s flexible exchange rate and inflation target were the cornerstones of its current macroeconomic framework.

“Any major changes that we see as having a practical bearing on the South African Reserve Bank’s role, and/or on its credibility in managing expectations, could be relevant to the sovereign credit rating, and would therefore be assessed,” S&P said. – Reuters

Source: The Sowetan

* Standard & Poor’s is an independent provider of credit ratings. In 2008, they published more than one million new and revised credits ratings and have rated more than US$32 trillion in outstanding debt.