Expecting coordination of fiscal and monetary policy by SARB is like swimming with crocodiles: Kganyago

Reserve Bank Governor Lesetja Kganyago has hit back at assertions that monetary policy and fiscal policy should be more coordinated. Kganyago says asking the central bank’s monetary policy to be coordinated with government’s fiscal policy equates to asking the central bank to swim with crocodiles.

In response to comments about bank’s lack of creativity in the use of monetary policy by the South African Reserve Bank, Kganyago gave Zimbabwe, Argentina and Turkey, where inflation has skyrocketed, as examples of what happens when central banks become creative with monetary policy.

He was addressing delegates at the SARB’s Biennial Conference in Cape Town.

“You know when you talk about coordination of fiscal and monetary policy, you’re tantamount to asking a central bank to swim with crocodiles. And if you swim with crocodiles there can only be one outcome.  And it’s a way of saying that you’ve got to have solid, credible fiscal anchors, because we know what the anchor of monetary policy is and society has got to bind the two authorities to deliver against those anchors, and there’s got to be consequences if one doesn’t.”

Economy post coronavirus pandemic

Kganyago emphasised that high debt levels pose a risk to macroeconomic stability in many economies.  He says the conference aims to bring together international thought leaders to reflect on the main challenges faced by central banks and macroeconomic policymakers.

“The aftermath of the COVID-19 shock continues to affect the global economy presenting old and new risks that continually test global policy certainty, we have now entered a challenging phase of the global recovery. Following a post pandemic economic boom, global growth has once again slipped below, longer run averaged.  Disinflation is under way, yet targeted inflation remains uncomfortably high and underlying inflation is starting to look sticky above many central bank targets.”

Kganyago says the central bank is still worried about some components of inflation, despite its slowing trend: 

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