Mboweni calls for clarity on SARB's duties on rand

Source: Business Day

Reserve Bank governor Tito Mboweni called yesterday for the constitution to be changed to clarify the central bank's objectives.

His call, at a Cape Town Press Club lunch, follows repeated appeals to the governor to take account of the effect that the presently strong, but previously very weak, currency has had on the CPIX inflation rate and the economy in general.

The latest instance was at the weekend, when Harmony Gold chairman Patrice Motsepe said Mboweni would address these issues at a National African Federated Chambers of Commerce (Nafcoc) conference next month. Motsepe is also an executive member of Nafcoc.

While a strong rand diminishes the threat of imported inflation, it cuts into export revenues and severely constrains the economic performance of the export sector and its associated ability to create jobs. Gold-mining companies have been particularly hard hit by the strong rand.

But Mboweni insisted yesterday that the objective of the Bank was to achieve price stability and the 6%-3% inflation target set by government. The constitution, on the other hand, says that the "primary objective of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic".

Mboweni said this constitutional provision was often misinterpreted to mean protecting the exchange rate of the rand, when it should mean protecting its buying power, or keeping inflation in check. It was very important that the constitution was clear that the objective of the Bank was the maintenance of price stability.

Mboweni was also mindful that calling for a constitutional amendment could stir political debate about whether the Bank's goal should not rather be employment creation and economic growth.

Mboweni said the Bank had had "remarkable success" in combating inflation, which should come within the target range by December.