Sarb holds repo rate, defends mandate

The South African Reserve Bank defended its mandate of price stability on Thursday, after the ruling African National Congress said the bank should broaden its focus to include employment and economic growth.

The central bank’s mandate now focuses on price stability, but the ANC said in its 2019 election manifesto that monetary policy should also “take into account other objectives, such as employment creation and economic growth”.

Governor Lesetja Kganyago said the bank’s mandate was to protect the value of the currency in the interest of balance and sustainable growth. Changing the mandate, he said, meant amending the constitution.

“So anyone who says that the Sarb must focus on growth has clearly not read the constitution,” Kganyago told reporters after announcing that the bank had decided to keep the benchmark repo rate unchanged at 6.75%.

“The fathers and mothers of our Constitution took the view that to have balanced and sustainable growth, you need price stability.”

President Cyril Ramaphosa said on Wednesday that the ruling party had no intention of tinkering with the independence of the Reserve Bank.

South Africa’s economy only recently emerged from a recession triggered in part by investor worries about policies such as the ANC’s plans to make the Reserve Bank fully state-owned and allow land expropriation without compensation.

After Thursday’s rate decision, the rand weakened to a session low of 13.81 per dollar. Past attempts to alter the central bank’s mandate have caused the rand to weaken.

Kganyago said the monetary policy committee had noted an improved near-term inflation outlook, mainly driven by a drop in oil prices and a stronger rand.

The bank now projects inflation will average 4.8% this year, down from a previous forecast of 5.5%. An average of 5.3 percent is expected in 2020.

“The overall risks to the inflation outlook are assessed to be moderately on the upside. Against this backdrop, the MPC unanimously decided to keep the repurchase rate unchanged,” Kganyago said.

All 27 economists surveyed by Reuters had predicted rates would be left unchanged, but they said a hike was likely at its third meeting of the year in May.

“With Reserve Bank Governor stating that growth forecast for 2019 has been revised down, the dovish tilt could support speculation over the central bank slowing down on rates this year,” said Lukman Otunuga, a research analyst with FXTM.