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Kganyago says central bank debate 'damaging'

A debate over ownership of the South African central bank is increasing investor uncertainty and stoking the risk premium associated with the country’s debt, Governor Lesetja Kganyago said on Wednesday.

SA Reserve Bank Governor Lesetja Kganyago. Picture: Cindy Archillies/EWN

JOHANNESBURG - A debate over ownership of the South African central bank is increasing investor uncertainty and stoking the risk premium associated with the country’s debt, Governor Lesetja Kganyago said on Wednesday.

Earlier this year, a faction in the governing African National Congress party pushed for the South African Reserve Bank’s mandate to be broadened to include boosting economic growth and job creation alongside price stability. The party also called for the bank to be nationalised.

President Cyril Ramaphosa and Finance Minister Tito Mboweni defended the bank’s independence and its inflation-targeting mandate, and this month Kganyago was appointed for another five-year term as its governor.

“This shareholding debate is more damaging to our economy than it should be. It sends the signal to both investors here and abroad that our macroeconomic framework is at risk, making the cost of debt higher than it would otherwise be,” Kganyago said in a speech at a university in Pretoria.

The bank’s ability to target economic growth and unemployment was limited because of the global nature of capital flows and technical factors in the collection of jobs data, Kganyago added. The jobless rate in South Africa is near 30%.

Last Thursday, the bank cut lending rates by 25 basis points to 6.5%, resisting calls from some quarters for a 50-bps cut to boost growth and take advantage of an easing cycle in developed markets.

“Our risk premium has increased by about three-quarters of a percentage point over the past five years. If risk subsides again, perhaps because we borrow less or invest more to grow faster, we will have more monetary space and might cut rates responsibly,” Kganyago said.