Mboweni on Marcus: Reserve Bank in good hands

The South African Reserve Bank will be in good hands under incoming governor Gill Marcus, outgoing Reserve Bank Governor Tito Mboweni said on Thursday.

“Ms Marcus is no stranger to the bank or to the financial sector, and I know that I will be leaving the bank in extremely capable hands,” he said at his final AGM of the central bank.

Marcus, a former deputy governor and previously the chairperson of Absa, replaces Mboweni at the head of the Reserve Bank from November 9, but will join as an advisor from next month.

President Jacob Zuma told reporters that he had originally reappointed Mboweni for another five-year term but the governor had asked to leave the post in November.

Mboweni—who has served as governor for more than 10 years—had come under severe criticism from the African National Congress’s trade union allies for resisting their pressure to cut interest rates faster to pull the economy out of recession.

The central bank has argued sticky inflation constrained its efforts to deal with a downturn.

Marcus’s appointment is highly regarded by the financial community, although some have expressed concern about perceived more leftist thinking than her predecessor.

The government and ANC have stressed that policy will not change at the central bank because of new leadership, and that inflation targeting, which the trade unions want scrapped, will stay in place.

Investors have largely welcomed efforts to fight inflation under Mboweni, as well as success in turning around a dire foreign-reserves position.

“I wish Ms Marcus, the deputy governors and the staff of the bank all the best in facing future challenges,” Mboweni said.

Meanwhile, South Africa’s consumer inflation should continue moderating, but the pace of decline may be constrained by high electricity price increases and above-inflation wage settlements, Mboweni said.

He said the domestic economy looked set to recover slightly in the months ahead, while Reserve Bank forecasts consistently showed inflation back inside the 3% to 6% target range over a “reasonable time horizon”.

The central bank has cut its repo lending rate by five percentage points to 7% since December to try to spur the economy out of recession, despite inflation remaining outside the band. It stood at 6,7% year-on-year in July.

Analysts expect rates to now remain steady.

Mboweni said the central bank’s response to the country’s first recession in 17 years and a global downturn had been hampered by upside risks to inflation.

A firmer rand, low global inflation, a wide domestic output gap and soft household spending would help cool inflation and there were also signs that the pace of moderation in food price inflation may be accelerating.

He added that the pace of accumulation of foreign reserves had slowed due to the financial market turmoil, and that further accumulation would be constrained by currency market volatility, the level of global risk aversion and the cost of sterilisation of holdings.

The slow pace of reserves accumulation comes despite the rand being strong and levels that Mboweni last week said was “overdone”.—Reuters