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Following Public Protector Busisiwe Mkhwebane’s politically-charged recommendation that the Reserve Bank’s mandate should be changed, the institution’s Governor, Lesetja Kganyago publicly defended its independence. The Reserve Bank has filed a court challenge to the recommendation, and Kganyago said South Africa risked slipping into a long and painful economic recession if the central bank was forced to abandon its policy of reducing inflation and protecting the currency in a Sunday Times editorial.

Kganyago hands off our reserve bankSpeaking a public lecture on monetary policy, he added that the Reserve Bank is respected because the people who are leading the institution are acting according to the constitution. “It is then for South Africans to say yes, we respect this institution, and when the institution is under attack, they should be able to say: hands off our Reserve Bank,” he said.

Reuters recently polled leading economists about the potential change to the Bank’s mandate, and found that it should continue targeting inflation to protect living standards and not shift to prioritise growth. All but two of the 21 economists surveyed were of this opinion.

The economists said changes to the mandate of the Reserve Bank to include or focus on growth would lead to a depreciation of the rand, deeper debt downgrades and uncertainty in financial markets. South Africa has already had its credit downgraded to “junk” by two of the three biggest rating agencies, and the economy is in a recession, with unemployment at close to 28%, a 14-year high.

The poll also found that South Africa, which has hiked interest rates by 200 basis points in the past three years, has not been overly hawkish since the 2008 global slowdown. Economists expect rates to be cut 25 basis points to 6.75% as inflation is expected to slow to 5.4% next year.

Finance Minister Malusi Gigaba has also criticised the Public Protector’s recommendation, stating that she “overstepped the mark”.

Mkhwebane has said that the mandate of the South African Reserve Bank should be to promote balanced and sustainable economic growth, while ensuring that the socioeconomic well-being of citizens is protected.

Image credit: http://whoswho.co.za/lesetja-kganyago-5083

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