Reserve Bank ownership debate has become ‘zombie discussion’ – Kganyago

South African Reserve Bank governor Lesetja Kganyago has said that the discussion around the ownership of the central bank has become a “zombie discussion”.

Speaking at a breakfast hosted by Legae Peresec in Johannesburg on Friday, Kganyago likened the debate on the central bank’s ownership to a “Trojan Horse” – something that is not what it appears to be.

“The poor citizens of Troy did not know what was inside the horse,” he said, referring to the Greek war with Troy, where a wooden horse was packed with hidden soldiers who slipped out at night to vanquish the ancient city. 

Debates on the ownership of the bank had morphed into a discussion on its mandate and how to deal with inter-governmental debt, he added.

Kganyago was referring to a recent kerfuffle within the governing ANC around the mandate of the bank. In early June the party’s national executive committee, in a communiqué, appeared to instruct that the bank’s core mandate of price stability and stable growth be expanded to include employment increases and debt assistance, primarily with regard to struggling power utility Eskom. This would include a programme of quantitative easing (which ANC secretary-general Ace Magashule at the time called “quantity” easing). 

President Ramaphosa, meanwhile, came out strongly in support of the bank’s original mandate during his State of the Nation Address on June 20. 

“Today we reaffirm this constitutional mandate, which the Reserve Bank must pursue independently, without fear, favour or prejudice,” said Ramaphosa. 

Kganyago on Friday also spoke twice about a potential 25-point basis rate cut in the first quarter of 2019. “With a cut in the first quarter of next year, we will still be in the (inflation targeting) band,” said Kganyago in reply to a question on whether monetary policy was sufficiently rooted in South African realities. 

Ownership now a ‘zombie discussion’

In December 2017, the ANC passed a resolution to nationalise the SARB, which is shorthand for a decision that the central bank should buy out its private shareholders. The call has gained volume in recent months.

Kganyago said on the matter: “The SARB has private shareholders but it is not privately owned. People say, ‘Why not just buy them out?’

“When you ask people ‘Why?’, they reply, ‘We want it to be owned by South Africans’. In that noise, people are conflating ownership with the mandate of the bank (which is spelled out in Constitution) and they confuse it with independence (which is spelled out in the Constitution).”

Kganyago said the history of private shareholding in the central bank dated back to 1921 as a means of capitalising the bank. Dividends payable are capped at R200 000 a year and 10c a share. Private shareholders have no authority over monetary policy.  

He argued the debate had become a “zombie discussion” because it was impervious to facts.

‘When economy was growing, you had jobs’

“Ownership does not make a difference,” he said, listing examples to show how ownership, whether national or with a mix of public and private, did not result in significant mandate changes. Kganyago said that 80% of central banks now targeted inflation, according to a recent study by the Bank of International Settlements.

Asked if monetary policy and the limited mandate of the SARB had an impact on growth, Kganyago said: “The contraction in the first quarter had nothing, zero, to do with monetary policy. It had to do with electricity constraints and strikes in the mining sector. You had construction sites hijacked. You can’t solve that with monetary policy. It just doesn’t work that way.”

In early June Stats SA announced that SA’s economy shrank by 3.2% in the first three months of 2019. 

He added: “Employment is an outcome of growth. South Africans speak about ‘jobless growth’ but it’s a useless statement.

“When this economy was growing, you had jobs.”

Kganyago said he had invited the New Zealand central bank governor to South Africa because of excitement in some circles that it had been given an employment mandate; he said that, in fact, New Zealand’s central bank protects price stability (as does South Africa’s) while also supporting employment growth.