cob Zuma last month has resumed office today. He is however faced with the enormous task of steering the bank amidst a wave of economic challenges including rising inflation and sluggish economic growth.
Be that as it may, experts and indeed the President, believe he is the right man for the job as he has served in previous capacities, including the Deputy Governor, just before his appointment. His appointment came at a time when global monetary policy was beginning to normalize after a period of unparalleled change that drove interests rates down leading to such programmes as quantitative easing where central banks pump liquidity into financial markets.
It appears one of the first tasks before Kganyago, will be centred around interest rates and monetary policy. As global monetary policy further normalizes, many central banks may push to return to positive real interest rates. South Africa, faced with high levels of poverty and unemployment might be under pressure to maintain looser monetary policy and keep interest rates low; but the governor would have to gradually raise interest rates in order to maintain the credibility of the bank. This is a potential move many have come to liken with administering “harsh medicine.”
Indeed, this may be his first move as he was quoted in September saying; “Ultra-low world rates were the right policy response to a global economic catastrophe; rising rates are a sign of a healthier world economy, which will help to realign investment decisions around long-term growth prospects.”
He continued by saying; “credible monetary policy – moving back within the inflation target – will help moderate volatility and facilitate SA’s adjustment to US policy normalization. Monetary policy must retain and strengthen its focus on inflation. In doing so, we will push the envelope of transparency and clarity wherever possible; to help ensure that inflation expectations do not drift from the target.”
An emerging responsibility facing central banks is to go beyond maintaining price stability to ensuring financial stability so as to avoid future economic crises. The South African Reserve Bank (SARB) is not left out of this as the Ministry of Finance has explicitly tasked it with that extra responsibility.
Making these tough and delicate choices requires a strong and experienced hand, and Kganyago’s appointment in 2011 as a Deputy Governor of the bank may have been with the intention of facilitating a smooth transition at a time like this.
“He is already part of the team. He is highly regarded for his extensive knowledge and expertise of the South African and global financial systems,” said President Zuma when he announced Kganyago’s appointment.
According to a statement from the presidency, Kganyago has served as economics co-ordinator and accountant for the ANC, aside from his time at both the Reserve Bank and the Treasury. This means he is well versed with the political landscape, an added advantage.
He has also done extensive work in global forums such as the G-20 – where he has led South Africa’s technical team to various G-20 ministers of finance and governors’ meetings. Exposure of this kind suggests a strong relationship with international investors and credit ratings agencies.
As Lesetja Kganyago officially takes the reins, the world will be watching to see if he keeps with the promise he made at his appointment last month when he said; “I shall not disappoint!”
By Emmanuel Iruobe