New era at SARB

A NEW era started at South Africa’s central bank yesterday as Gill Marcus succeeds former governor Tito Mboweni.

A deputy governor between 1999 and 2004, she will chair her first meeting of the Reserve Bank’s monetary policy committee on Monday and Tuesday of next week.The bank’s repo rate, which was hiked from seven per cent to 12 per cent between June 2006 and June last year, has been cut by the same amount since December. Most economists expect no further rate cut but trade union federation Cosatu told a joint meeting of parliamentary finance committees earlier this month it wanted the repo rate cut to three per cent.Marcus is unlikely to comply, although it would not surprise economists if she cut by a further 50 basis points because South Africa is lagging the global recovery. However, with inflation still just above the Reserve Bank’s three per cent to six per cent target range, and massive electricity tariff hikes in the pipeline, she has limited scope for further cuts.Cosatu, which welcomed the appointment of Marcus when it was announced in July, has campaigned aggressively for a change to the inflation targeting regime.Ahead of the medium-term budget policy statement last month, Finance Minister Pravin Gordhan described the inflation-targeting framework as ‘an important element in macroeconomic co-ordination’, which ‘has assisted in lowering inflation expectations, and in preventing inflation from undermining South Africa’s competitiveness’.However, he also said: ‘We recognise that alongside inflation reduction and financial stability, we must seek faster development and employment creation.’The comment indicates some concessions to Cosatu’s calls for the bank to have a dual mandate.At present the bank’s mandate is only to keep inflation within the target range, which is set by government. And the principle of a single mandate – to protect the value of the currency – is enshrined in the constitution, according to Dennis Dykes, Nedbank group chief economist. To change the mandate to include growth or employment creation would require a change to the constitution.A criticism of a dual mandate is that the two are not reconcilable when inflation is high and growth is low – a condition described as stagflation. If the bank does not keep a tight rein on inflation South Africa could soon be facing stagflation.Alternatively, the targeting framework could be retained but the target cei-ling could be raised. However, targets are set to anchor inflation expectations and some economists believe adjusting them destroys the credibility of the exercise.Marcus’s appointment was favourably received by financial markets. As deputy governor she was responsible for policy relating to financial market regulation. As chair of Parliament’s joint standing committee on finance, between 1994 and 1996 Marcus has experience of the cut and thrust of political interchange. She served as deputy finance minister between 1996 and 1999 and was chairwoman at Absa in the two years before her appointment to head the central bank.- Business Report