SARB Caught In Political Tug Of War
The SA Reserve Bank is said to “protect the value of the [Rand] in the interest of balanced economic growth and development” according to Minister of Finance Tito Mboweni. To the average person on the street, it is simply the shadowy organisation that, for some reason, sets the repo rate and thereby determines how much interest they will pay on their credit such as homes and cars etc.
‘Recently the Reserve Bank has been the center of a lot of varying political aims and growing confusion over its role’
Recently the Reserve Bank has been the center of a lot of varying political aims and growing confusion over its role. Here are some of the recent highlights of what has been going on:
ANC Conference 2017
At the 2017 ANC Conference, a resolution was made to buy out shares in the SARB.
EFF SARB Amendment Bill
The Economic Freedom Fighters (EFF) proposed an amendment bill to nationalise the Reserve Bank in August 2018. Key to this was shifting power from shareholders to the Finister of Finance.
Soon after the EFF proposed the amendment bill the Democratic Alliance (DA) released a statement that the opposition party would fight against any such ‘hostile takeover’ by the state.
SARB Don’t Care
Next, Reserve Bank Governor Lesetja Kganyago said that the SARB gets its mandate from the constitution and not shareholders and so buying out shares would make no difference to its role in the economy. He said that if they were asked to do something unconstitutional by shareholders or the Minster of Finance they simply could not.
Cabinet Don’t See any Threat to Independence of SARB
Minister of Communication Nomvula Mokonyane (in 2018) told reporters that cabinet doesn’t think that the independence of the SARB would not be affected by any change in ownership.
SARB Will Shift Focus
Recently Deputy President David Mabuza reiterated that the ANC plans to buy out the SARB and shift its focus to be an “instrument of development”. He said that the SARB would have to shift its focus towards public interest and development (as opposed to the value of the currency).
Recent weeks have seen things once again flair up and ANC Secretary General Ace Magashule made comments that the Party is resolved to adjusting the SARBs mandate and that government is considering or exploring quantity easing measures (adding more notes into the pool of printed money in the country).
Adding more Rand into circulation gives the government more money to pay off their debts quickly but ultimately lowers the value of each individual Rand in circulation.
Finance Minister Tito Mboweni almost immediately responded to Secretary General Ace Magashule’s comments by taking to social media and saying that government sets the mandate of the SARB and that there is no planned quantitative easing.
EFF begin Name Calling
In response to the Minister of Finances comments the EFF began a very public drive of name calling and insults against the Minister. They feel he has conflicting interests and should not be listened to.
International Investment Pouring Out Of SA
Recent comments and discussions about nationalizing the Reserve Bank, appropriating land without compensation and such, has seen the Rand plunge to extreme lows not seen for many years. Investors like things to be consistent and are wary of change (regardless of whether it is for the good or not). The Rand dropped below the R15/1 US$ barrier again during all this political back and forth. A weaker Rand continues to add to inflationary pressure and this along with other negative factors has seen the economy stall at 0% growth recently. Many sectors of the economy are weaker now than at the start of the ‘great recession’ in 2008/9.
Stats show that millions in foreign investment is already pouring out of SA at an alarming rate and this is while Moody’s rating agency has not yet declared SA debt & investment “junk“. They have however said that a “technical recession” is likely in the months ahead.
‘The Rand dropped below the R15/1 US$ barrier again during all this political back and forth’
All this points to tough economic times ahead. Consumers who are already under pressure are going to find themselves even more under pressure as the cost of living once again jumps up in response. Internationally, the trade war between USA and China are proving beneficial only to Europe who is itself embroiled an ongoing Brexit debacle. What this means for those in debt review already is that their budget is going to come under pressure and so is job security. For those not in the process but under severe financial strain, it may finally be time to make use of the process to pay off their growing debt levels and change to a cash lifestyle within their means.