/ 29 January 2010

Zuma: Reserve Bank mandate needs debate

President Jacob Zuma said on Friday the mandate of the South African Reserve Bank needed debate, but it was premature to decide whether a move away from an inflation-targeting framework made sense.

Inflation targets have come under fire from the African National Congress and its allies, who want the mandate of the bank broadened from a focus on inflation to also look at growth and jobs.

“I don’t think it would be prudent now to make the judgement as to which way the bank must take,” Jacob Zuma told a small group of reporters on the sidelines of the World Economic Forum in Davos.

“We need to hear the professionals, the experts, those who are going to say this is the best thing to do. I’m sure the debate is going to emerge,” he added.

The Reserve Bank — mandated by the government to keep inflation between 3% and 6% — argues that its clear focus on inflation helps reduce market uncertainty and has boosted investment.

But the Congress of South African Trade Unions has called for the target framework to be scrapped, and the Reserve Bank and the government have set up a committee to assess the effectiveness of inflation targets in Africa’s biggest economy.

The Reserve Bank is one of a few in the world owned by private shareholders, although they have no say in its operations and policies.

South Africa has been hit hard by the global economic slowdown, but its economy emerged from recession in the third quarter of last year and is expected pick up in 2010, helped by the Soccer World Cup in June and July.

Zuma cautioned, however, that the recovery would not be rapid and unemployment would decline only gradually. “It is going to be quite slow,” he said.

The South African Reserve Bank left benchmark rates on hold at 7% this week and did not rule out another cut.

But Maria Ramos, chief executive of Absa group, told Reuters on Thursday she thought the central bank was more likely to raise rates given inflation was expected to remain at the high end of its target range into next year. — Reuters