South Africa’s economic woes bigger than monetary policy: Governor

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Formally adding unemployment or economic growth to the South African central bank’s mandate would risk policy mistakes and hurting its credibility, Governor Lesetja Kganyago said on Wednesday.

The Reserve Bank (SARB) has long been under pressure to take more drastic measures to revive growth in Africa’s most advanced economy, with calls for the bank to slash lending rates and finance government through quantitative easing (QE).

The bank has cut rates by 300 basis points in 2020 to a record-low 3.50%.

And in March it launched a bond-buying program, purchasing government debt in the secondary market to ease a liquidity collapse in the capital markets prompted by the COVID-19 pandemic.

But with the economy, already in recession before the coronavirus and set to contract by more than 7% this year, and the government budget nearing double-digits deficit, labour and some politicians have called for more drastic action, including a widening of the bank’s mandate.

“The problem is that formally adding an extra mandate, in the context of our propensity to stagflation, could encourage policy mistakes and weaken credibility,” Kganyago said in a speech broadcast virtually by the University of Pretoria.

“While we would all like South Africa to reach permanently high growth, this is beyond the powers of a central bank,” Kganyago said, adding the bank would stick to inflation-targeting policy.

“We are in very difficult circumstances, but QE isn’t the answer. We need to focus on real solutions.”

Lesetja Kganyago addresses University of Pretoria, SARB webinar: