By Jac Laubscher, 8 December 2015
No aspect of monetary policy seems to have escaped being disputed.
The South African Reserve Bank (SARB) has of course found itself in the middle of these debates because of South Africa’s involvement with inter alia the Bank for International Settlements, the G20, and the Financial Stability Board. Because South Africa was not at the centre of the crisis, many of the issues mentioned above were peripheral to the SARB’s activity sphere. However, some of the matters raised are very pertinent to the SARB’s role in a South African context.
Judging by its conduct of monetary policy over the past two years the SARB on the face of it seems to have been largely unaffected by global developments in central banking in recent years. The exception is at the regulatory level where, in line with current international best practice, it has been given the lead role in macro-prudential supervision as part of South Africa's "twin peaks" approach to financial regulation.
Its raising of the repo rate, now totalling 125 basis points since it started on its tightening cycle 22 months ago, in the face of a weakening economy and its own acknowledgement of the absence of any indication of inflationary pressure arising from excess demand speak of a determination to uncompromisingly stick to its inflation-targeting mandate. Although the SARB certainly was true to its self-ascribed role as flexible inflation targeter subsequent to the outbreak of the crisis and the economy falling into recession, it increasingly seems to be taking quite a hard line and fiercely guarding its credibility and independence.
In fact, the SARB appears to be committed to bringing inflation expectations into line with the mid-point (4,5%) of its targeting range rather than allowing them to settle close to the top-end (5,5 - 6%).
However, the fundamental issue facing the SARB in the short-term is the preservation of its independence in the face of a political environment that has shown little respect for the integrity and status of important institutions. The mounting challenge of a government debt burden that is continuing to grow on the back of non-growth-enhancing expenditure that will therefore also not grow the tax base from which it is to be financed, makes a hard stand on inflation increasingly unattractive and the monetisation of the government debt likewise more attractive.
With the authority of the National Treasury already being undermined it would be the last straw to push the economy over the precipice if South Africa were ever to go down this route.