SARB’s mandate up for review

South Africa's government will again look at the South African Reserve Bank's mandate, a move which could see the central bank's inflation-targeting remit watered down.

A spokesperson for the African National Congress (ANC), the ruling political party, told reporters on Sunday that it was to review the mandate. An official statement is yet to be made, though an ANC spokesperson on Tuesday confirmed to CentralBanking.com that the mandate would be reviewed. He would not comment on the specifics of the review.

The move comes on the back of pressure from the Congress of South African Trade Unions to review the inflation-targeting framework - a policy it blames for South Africa's high unemployment rate, which as of September stood at 24.5%.

Though a narrower measure of inflation, such as core inflation or a dual mandate that focuses on growth as well as price stability are considered possibilities, analysts believe the Reserve Bank is likely to broadly keep its monetary-policy mandate.

"Most of the key players within the South African government realise the importance of inflation targeting not only for maintaining macroeconomic stability but also for encouraging much-needed foreign investment," Carmen Altenkirch, an economist at Nedbank, told CentralBanking.com. "The new government does realise the importance of engaging with society on key issues that impact everyone, such as inflation targeting. However, this is probably more reflective of a more inclusive style of government rather than an underlying desire to change economic policy."

Altenkirch added that an official announcement that the Reserve Bank's mandate was going to be altered fundamentally would prompt negative market sentiment as it would help to confirm fears of a leftward shift in economic policy."

Others deemed a review of the mandate unnecessary. "At this point, it is not entirely clear-cut that change is needed," Razia Khan, the head of research for Africa at Standard Chartered, a bank, said. "Gill Marcus [the governor] stated emphatically that engagement was to be welcomed, so the issues and challenges important to all can be tackled, but there is insufficient information available now to suggest definitively that interest rate policy needs to be altered."

However, such economically sound arguments are likely to come under fire from organised labour in a country where exports are an important component of GDP

The Reserve Bank adopted an inflation target in February 200. It targets CPIX inflation of between 3% and 6%.

Rate vote
On Tuesday, the Reserve Bank opted to keep its benchmark rate on hold at 7%, in line with market expectations.

Marcus marked her first post-meeting statement by indicating that the risks to inflation and growth were evenly balanced.

The central bank also opted to cancel its December meeting, saying that it was no longer necessary given the stabilisation in market conditions.

The Reserve Bank in March increased the frequency of its rate meetings to once a month.