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We take a look at the joint announcement/statement released by the Minister of Finance and the governor of the South African Reserve Bank (SARB). One wonders why they would release this statement at this point in time.
Do they feel the pressure being placed by civil society, economists and markets alike on the SARB to cut interest rates and to broaden the SARB's mandate to focus more on growth necessitated this statement? Possibly so. At the end of the day the National Treasury has the final say on the mandate of the SARB. Perhaps it was released to comfort markets that no significant changes will take place soon and that the SARB remains independent.
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Joint statement released by Minister of Finance and Governor of the Reserve Bank
Start statement
04 July 2019
Joint statement by the Minister of Finance Tito Mboweni and the Governor of the South African Reserve Bank Lesetja Kganyago
The Minister of Finance and the Governor of the South African Reserve Bank (SARB) met this afternoon as they routinely do, in line with section 224 (2) of the Constitution. The effective co-ordination of fiscal and monetary policy is a central pillar of good macroeconomic management and policy certainty. The roles and responsibilities of both the National Treasury and the SARB in both the execution and communication of its functions and policies are well defined. Such co-ordination reduces any potential or unnecessary uncertainty around the formulation, decision making and implementation of the macroeconomic policy framework.
The National Treasury has always respected the independence of the SARB, and communicates when necessary on fiscal and economic policy. The Ministry of Finance would under certain circumstances not comment on the monetary policy stance or interfere in monetary policy decision making or decisions of the SARB. That is the role of the SARB. The SARB does not comment on fiscal policy and tax matters. The SARB, as an independent central bank of the Republic of South Africa, ensures that it takes full responsibility for assessing the impact that its policies have on inflation and the economic prospects of the country. This is a standard practice globally which ensures that there is no confusion and any misleading signals about both our assessment of economic developments and the role our specific institutions play in macroeconomic co-ordination, which includes the exchange rate policy. Our exchange rate policy is that we want to have a stable and competitive exchange rate. This practice does not mean that the two institutions act in isolation but in coordination.
It is well-known that there are regular consultations between the Minister responsible for national financial matters and the Governor of SARB in accordance with the constitution.
Jointly issued by the Minister of Finance and the Governor of the South African Reserve Bank (SARB)
End statement
04 July 2019
Joint statement by the Minister of Finance Tito Mboweni and the Governor of the South African Reserve Bank Lesetja Kganyago
The Minister of Finance and the Governor of the South African Reserve Bank (SARB) met this afternoon as they routinely do, in line with section 224 (2) of the Constitution. The effective co-ordination of fiscal and monetary policy is a central pillar of good macroeconomic management and policy certainty. The roles and responsibilities of both the National Treasury and the SARB in both the execution and communication of its functions and policies are well defined. Such co-ordination reduces any potential or unnecessary uncertainty around the formulation, decision making and implementation of the macroeconomic policy framework.
The National Treasury has always respected the independence of the SARB, and communicates when necessary on fiscal and economic policy. The Ministry of Finance would under certain circumstances not comment on the monetary policy stance or interfere in monetary policy decision making or decisions of the SARB. That is the role of the SARB. The SARB does not comment on fiscal policy and tax matters. The SARB, as an independent central bank of the Republic of South Africa, ensures that it takes full responsibility for assessing the impact that its policies have on inflation and the economic prospects of the country. This is a standard practice globally which ensures that there is no confusion and any misleading signals about both our assessment of economic developments and the role our specific institutions play in macroeconomic co-ordination, which includes the exchange rate policy. Our exchange rate policy is that we want to have a stable and competitive exchange rate. This practice does not mean that the two institutions act in isolation but in coordination.
It is well-known that there are regular consultations between the Minister responsible for national financial matters and the Governor of SARB in accordance with the constitution.
Jointly issued by the Minister of Finance and the Governor of the South African Reserve Bank (SARB)
End statement
We think the pressure on SARB to look at their mandate again and stop fixating on inflation targeting and rather give more attention on the price stability in the pursuit of balanced and sustainable growth as stated in the current mandate of the South African Reserve Bank. And the weak economic growth has intensified the pressure on the SARB to take a long hard look at their current view on South Africa's monetary policy. Monetary policy can assist in reviving South Africa's economy, and with inflation being well within the inflation target and the bank's own forecasts of inflation showing it will remain within range well into 2021, we believe it is time for expansionary monetary policy (basically cutting interest rates). And not just by 25 basis points. South Africa needs a significant cut, like 225 basis points, as we recommended in our last article relating to interest rates