Central bank must pursue flexible policy, ANC says

South Africa’s ruling party said the Reserve Bank must consider the impact of monetary policy on economic growth when it targets inflation, re-emphasizing the flexible mandate the government gave the central bank almost a decade ago.

“The South African Reserve Bank must pursue a flexible monetary policy regime, aligned with the objectives of the second phase of transition,” the African National Congress said in its election manifesto that was unveiled on Saturday. “Without sacrificing stability, monetary policy must take into account other objectives such as employment creation and economic growth.”

While South Africa’s economy emerged from a recession in the third quarter, growth remains sluggish, hampered by subdued business confidence, higher taxes imposed by the government in February and a tight monetary-policy stance. Gross domestic product hasn’t expanded more than 2% annually since 2013.

Reserve Bank Governor Lesetja Kganyago, who has been a strong voice for the bank’s independence, has in the past reiterated that any decisions taken by the monetary policy committee will be data-dependent and focus on the bank’s primary mandate of targeting inflation at 3% to 6%. While the central bank increased its key interest rate for the first time in more than two years in November, all 16 economists in a Bloomberg survey expect the repurchase rate to remain unchanged at 6.75% on January 17.

Independence ‘Sacrosanct’

“The ANC is not proposing tweaking the mandate of the Reserve Bank,” Enoch Godongwana, the party’s head of economic transformation, said Saturday. “The independence of the Reserve Bank is sacrosanct. The intention is coordination between the monetary and fiscal authorities.”

National Treasury, which slashed its growth forecast for 2018 by half to 0.% in October, may take a prudent stance on tax hikes this year when is unveils its budget next month as the country prepares for elections expected to take place in May.

South Africa raised the value-added tax rate for the first time since 1993 last year, increasing it by 1% point to 15% in a bid to shore up government finances. Still, Treasury expects to collect R1.35 trillion ($96 billion) in the 12 months through March 2019, or R27.4 billion less than it estimated in the February budget after revising refund estimates. South Africa has missed its revenue-collection target every year since 2015.
 

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