Johannesburg – While the country’s financial stability may be the mandate of the South African Reserve Bank (SARB), it is the collective responsibility of several authorities to support the maintenance of financial stability.
This was the assertion of Finance Minister Tito Mboweni on Tuesday during the central bank’s centenary celebration.
“At the National Treasury, our support comes in the way of developing a legal structure within which the regulatory authorities and the Reserve Bank can execute their mandate,” said the Minister.
During his address, he reflected on his time as the country’s eighth governor between 1999 and 2009.
“It was in many ways a momentous occasion. Africa was indeed on a path of transformation and on a new path in South Africa where we would integrate the old and the new and still move forward as one country.”
Pondering on his tenure, he said the bank’s task at the time was to repair the South African economy, gain investor confidence and enhance the functions and policy decisions of the SARB.
“As the work of the South African Reserve Bank is much easier with public support, it was necessary to improve the general public understanding of the role and functions of the central bank.
During this period, Mboweni said the importance of containing inflation took centre stage in the strategy to improve communication.
“It was necessary to convey the message that inflation is not a policy tool, but an aberration that has a negative impact on the country, with a particularly heavy burden on the poor.
“Important changes in respect of media engagement and communication in general to achieve the goal of a better-informed public.”
Monetary Policy Committee
During this period, the bank has achieved several milestones. Among these was the establishment of the Monetary Policy Committee (MPC), with responsibility for setting monetary policy. This gave certainty about the decision-making structure and the cycle of monetary policy decisions.
He said while some analysts link the establishment of the MPC with the adoption of an inflation target, these were two separate processes.
“An MPC is not a precondition for inflation targeting, while inflation targeting is also not a precondition for an MPC,” he said.
During this period, Mboweni said a further important step was the introduction of a media briefing after each MPC. He said this enhanced public dissemination of information and made a further contribution to improved communication.
Since then, the bank has used the signalling system for policy rate setting, with banks submitting tenders for liquidity to the central bank.
He said: “Much has been written on the advantages and shortcomings of the signalling and tendering system and its comparison with a system of interest rate fixing. The signalling system was replaced by a system of repurchase (repo) rate setting by the South African Reserve Bank, perhaps in a somewhat roundabout way”.
Y2K period
Over the years, the central bank had to lead the country’s banking system and the national payment system through the uncertain period in the run-up to the millennium change-over (Y2K) period.
He said proper nation-wide preparation ensured that South Africa sailed through this period without any hick-ups.
“After the Y2K changeover it was obvious that a fixed repo system delivers better results than the signalling and tendering system.
Inflation targeting
“Inflation targeting was adopted shortly after the millennium change-over. The inflation target serves as a clear anchor for monetary policy, thus focusing attention on the ultimate objective of the SARB. With a clear policy focus, the general understanding of the monetary policy framework improved, thus linking the understanding of interest rate adjustments and the focus on the rate of inflation.”
The introduction of inflation targeting as a monetary policy framework replaced the previous eclectic policy framework. The goal of exchange rate stability was one of the elements of the eclectic policy framework, he said.
He expressed pride at how SARB’s international standing improved during this period, saying international institutions and agencies enhanced their engagement with the Central Bank.
Mboweni thanked the incumbent governor, Lesetja Kganyago, and his “exceptional” team for steering the ship with such “excellence and proficiency”.
South Africa, he said, was not spared by the 2008 global recession. The financial meltdown saw the country lose about million jobs.
“In February 2011, driven by our experiences from the global financial crisis, as well as lessons learnt domestically, government signalled the process of implementing significant and far-reaching changes to the country’s financial regulatory structure,” said the Minister.
In this respect, Cabinet approved the publication of a policy paper entitled “A Safer financial sector to serve South Africa better”. The policy paper proposed the establishment of two dedicated regulators (the Prudential Authority and the Financial Sector Conduct Authority) (the Twin Peaks) to ensure a more intensive, intrusive and effective regulation of prudential and market conduct aspects of the financial sector.
The Twin Peaks process culminated in the enactment of the Financial Sector Regulation Act of 2017.
– SAnews.gov.za
Zuma says his judgment was not consistent with constitution
Constitutional Court clears president Ramaphosa in CR17 campaign scandal
Follow @SundayWorldZA on Twitter and @sundayworldza on Instagram, or like our Facebook Page, Sunday World, by clicking here for the latest breaking news in South Africa. To Subscribe to Sunday World, click here.
Sunday World
