South African legislators have recommended that Parliament revise laws to give it more oversight over the Reserve Bank, raising concerns of political interference in monetary policy as inflation soars.
The Reserve Bank has raised its repo rate by 400 basis points to 11% since June 2006 to try to tame inflation, leading to criticism from the ruling African National Congress’s (ANC) communist and trade-union allies.
Investors fear the ANC — under new leader Jacob Zuma, who beat President Thabo Mbeki in a party vote in December with the backing of the ANC’s left and the unions — may be pressured into shifting policy.
A task team looking at parliamentary functions submitted a report to Parliament’s rules committee — one of its highest decision-making bodies — proposing enhanced oversight over the central bank.
It also suggested Parliament invoke its powers to make changes to the national budget.
”In this regard it is recommended that the Reserve Bank Act 90 of 1989 should be reviewed and revised for purposes of aligning the Act with the Constitution in order that Parliament may exercise oversight on it,” the report said.
The proposal, which the rules committee has agreed to in principle, does not refer to specific areas that legislators want to oversee.
But ANC MP Obed Bapela, chairperson of the National Assembly’s house committee and who led the task team, said in an interview with Business Report that it was important that the bank heard the arguments of public representatives.
It should also be informed about public concern over high interest rates, which was ”doing harm to the poor”, he said.
The Congress of South African Trade Unions has repeatedly called for Parliament to make use of its right to amend the budget and for the inflation targets that the Reserve Bank uses as an anchor for monetary policy to be scrapped.
It says high interest rates hurt the poor and stifle growth.
Parliament already has some oversight functions — Reserve Bank Governor Tito Mboweni briefs legislators at least four times a year to coincide with the bank’s quarterly bulletins.
The central bank has said it is in favour of more oversight but jealously guards its independence over monetary policy decisions. Its seven-person monetary policy committee meets every two months to decide on the next move on interest rates.
Tony Twine, senior economist at analysts Econometrix, said parliamentary oversight of the bank was not new but the timing of the proposal raised concerns.
”The context of the present day throws a bit of colour on the statement that Parliament wants greater involvement. It stems from the fact that inflation is already high and it is going to get higher,” he said.
”The ANC, under newly elected leadership, would probably want to discourage the Reserve Bank from chasing after its monetary policy objectives by increasing interest rates even further.”
The series of rates hikes have succeeded in taming robust consumer demand, but inflation continues to accelerate, spurred by rising international food and fuel costs.
Targeted CPIX (consumer inflation less mortgage costs) has exceeded the 3% to 6% band for 10 months, climbing to a five-year record of 8,8% in January and analysts say it has still not peaked. — Reuters