Here's What Keeps South Africa's MPC Members Up at Night

(Bloomberg) -- A lack of trust, policy coherence and political infighting that’s hindering efforts to get reforms off the ground are among the issues that keep the South African Reserve Bank’s Monetary Policy Committee members up at night.

On Thursday, the seven-member committee held its key interest rate at a two-year low of 6.5 percent as the nation’s economy struggles through a recession and as policymakers warned investor sentiment toward emerging markets remains a risk to the currency and adds to inflationary pressures. Three of the MPC’s seven members voted to increase the rate by 25 basis points, a deviation from the previous meetings in July and May where the decisions to hold were unanimous.

The central bank sees inflation remaining within its target range of 3 percent to 6 percent until 2020, with average CPI of 4.8% in 2018, 5.7% in 2019 and 5.4% in 2020, it said in its monetary policy statement on Sept. 20.

Daniel Mminele:

  • Deputy governor for markets and international economic relations and policy
  • “What does worry me, in terms of needing to control inflation and the value of the currency, is that there doesn’t seem to be an understanding or willingness to pull in one direction.”
  • “We are a small, open economy that is plugged into the global economy and that is akin to sailing on the great ocean in a small boat.”
  • “We have basically decoupled from the global economy,” with South African gross domestic product growth lagging that of the developed world, he said.
  • “All of this plays into social cohesion; it’s no surprise that we’ve seen the tensions that are arising in society. We used to count ourselves as fortunate to have a young population,” but they are not appropriately skilled.
  • “We have a shocking lack of a sense of urgency.”

Brian Kahn:

  • MPC member and adviser to Governor Lesetja Kganyago (Kahn’s final MPC was on Sept. 20)
  • “There just doesn’t seem to be any policy coherence, there doesn’t seem to be commitment to follow a clearly coordinated path. This is the big challenge we’ve seen in the last 10 years from policy-making previously when there was a lot better coordination.”
  • “Private-sector investment of the last five years has been on a very strong downward trend. It’s a question of getting that investment back, and you’re not going to get it going as long as you’ve got that uncertainty.”
  • With reference to plans to introduce a new Mining Charter: “The problem is there may be a lot of damage that’s already been done, that even if it is a good charter, and it creates confidence, are people going to say, ‘is this now the end of the story?”’

Fundi Tshazibana:
  • MPC member and adviser to the governor
  • “Administered prices such as telecommunications costs and port charges add to the prices of goods and these are among the things that require a sense of urgency.”
  • Education has a type of cost “that’s not always visible,” she said.
  • “We aren’t educating for our needs. We’re actually contributing to the skills premium.”

Kuben Naidoo:
  • Deputy governor and chief executive officer of the Prudential Authority
  • “The basis to build trust is lost. Without trust there is no growth. If the economy grows at 5 percent, it will take 30 years growing at that rate to get to full employment and no poverty. There are no short cuts. But because the society is so unequal and the distribution of benefits is so skewed, there is a risk that this will be undermined.”
  • “You’re in a constant Catch 22: inequality is so high and trust is so low, you can’t get a level of growth to build trust. This leads to populism,” or leads people to believe dictatorship will work, he said.

Rashad Cassim:
  • MPC member and head of the bank’s economic research and statistics department
  • “One of the real problems is the political constraints to getting economic reform going. For example, do you have a bold government who could put a wage restraint on public-sector wages? And I think, that’s really the obstacle we have, is the extent to which government can take on the politically binding constraints to make decisions that are not populist but may come at some political cost, and that’s really the bottom line. There’s this polarization in economic policy. At one level there’s a view that you can’t have pro-market kind of reform because it’s anti-distribution. On the other hand, you need this distribution, whatever the implications for the market.”