Ramaphosa comes to Reserve Bank's defence amid rates hikes

President Cyril Ramaphosa has defended the South African Reserve Bank (SARB) and its approach to monetary policy and inflation targeting, saying governor Lesetja Kganyago and the monetary policy committee should continue preserving the currency and fighting inflation.

Ramaphosa was replying to questions from MPs in the National Assembly on Thursday. The bank has kept rates steady for two quarters after the cycle of hikes and no cuts to the repo rate since November 2021.

ANC MP Phumulo Masualle asked if the institution drives monetary policy towards development of the economy and if the hiked interest rates of the past two years constrained the economy.

Ramaphosa said the mandate of the SARB stemmed from the constitution and the institution existed to preserve the currency of South Africa. There was no undertaking to review the mandate of the bank and it must do its work freely without interference.

“South Africa faces structural growth and employment problems which [can't] be addressed by a mere accommodative monetary policy stance. We need to focus on the structural factors constraining our economy,” he said.

He warned against fiddling with the constitution and other laws to make changes to the mandate of the bank, adding its work was vital for the stability of the economy.

“Section 224 of our constitution sets out the clear objectives of the central bank and if one looks at the section carefully, you will find that once it addresses the value of our currency, it has to be looked at in a broader context.

“We need to use all the instruments at our disposal. The macroeconomic policies of our country need to be used, fiscal and monetary, to foster growth. The focus on the value of our currency is not a matter to look at in isolation. It needs to be looked at as part of the whole,” said Ramaphosa.

The frustrations of South Africans with the past 15 years of low growth since the global recession were understandable, he said, but there were several interventions to be considered to remedy the problem before contemplating changing the SARB's independence.

“If we use this type of approach which is multidisciplinary, we should continue to ensure growth is encouraged and entrenched in our economy. We have faced serious challenges, particularly after the crisis of 2008. The growth levels have not lived up to our expectations and we continue to grow at anaemic levels.”

Various reforms to create a climate conducive for investment are being made to achieve at least 5% growth to create more jobs.

In a supplementary question, DA leader John Steenhuisen said if the bank loses independence and prints money, it will cause hyperinflation. He asked Ramaphosa if he believed the SARB's investigation into the Phala Phala saga over foreign currency stolen from the president’s private farm undermined its credibility.

“The independence of the Reserve Bank is set out in our constitution and the Reserve Bank has always acted independently without favour, without prejudice and it is one of those central banks that are highly respected in the world. And we need to continue to uphold the independence of the Reserve Bank,” Ramaphosa replied.

IFP MP Narend Singh asked why South Africa adopted inflation targeting as a monetary policy when much of inflation is driven by global matters as well as domestic ones.

Ramaphosa said there was no reason for the SARB to deviate from inflation targeting as it continues to use instruments such as interest rates to keep inflation in check.

“We have opted for a policy approach that sets parameters for inflation between 3% and 6%. It should be known that we are not the only country in the world that has an inflation targeting approach. This has served us well and I believe it continues to serve us well.”

Ramaphosa said he was confident that as inflation comes down and the currency gets stronger, rates will come down. Until otherwise demonstrated, the SARB has the right approach.

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