Kganyago takes baton from Marcus

(in the Pic - President Zuma congratulates New Governor Lesetja Kganyago and the outgoing Governor Gill Marcus). President Jacob Zuma appoints Mr Lesetja Kganyago as South African Reserve Bank Governor, Union Buildings, Pretoria, Gauteng Province. 06/10/2014, Elmond Jiyane, GCIS

(in the Pic - President Zuma congratulates New Governor Lesetja Kganyago and the outgoing Governor Gill Marcus). President Jacob Zuma appoints Mr Lesetja Kganyago as South African Reserve Bank Governor, Union Buildings, Pretoria, Gauteng Province. 06/10/2014, Elmond Jiyane, GCIS

Published Oct 7, 2014

Share

Ellis Mnyandu

PRESIDENT Jacob Zuma appointed Reserve Bank deputy governor Lesetja Kganyago yesterday to succeed Gill Marcus when her term as governor ends on November 8.

Though widely anticipated, the appointment signalled a bid to reassure investors and credit ratings agencies by ensuring continuity and independence at the central bank. When Marcus announced nearly three weeks ago that she would not be available for a second term there was an instant clamour among economists and market participants for Zuma to appoint an internal candidate.

Kganyago, 48, joined the central bank in May 2011 after being in charge of the National Treasury for more than seven years as director-general.

As an insider Kganyago is someone who has worked alongside Marcus in steering the South African economy – Africa’s most advanced – during the aftermath of the global financial crisis.

His appointment as central bank governor caps a critical transition phase for Zuma’s administration after Nhlanhla Nene was appointed finance minister following elections in May, replacing Pravin Gordhan. Nene had also served as a deputy to his former boss.

Azar Jammine, the chief economist at Econometrix, called Kganyago’s appointment “the obvious choice”, but questioned why it took nearly three weeks for Zuma to make up his mind. “This leads one to believe that the choice of Kganyago was not automatic,” he said.

Even so, the appointment was likely to be well received by foreign investors and ratings agencies, as well as by South Africans, Jammine added.

“It is conceivable that the government was contemplating a political appointment to appease those within its ranks who have been critical of the Reserve Bank’s independence.

“If this take on events is valid, then the appointment of Lesetja Kganyago as Reserve Bank governor should come as a relief.”

The rand, which has been on shaky ground of late as the dollar rallies on renewed bets that the US Federal Reserve will soon cutback monetary stimulus, was little moved following news of the appointment of Kganyago.

It held steady at R11.27 against the dollar after having recouped some of the losses that took it as low as R11.38 late on Friday following robust US employment data. The rand was bid at R11.2407 to the dollar at 5pm, 12.08c firmer than at the same time on Friday.

“We expect no major shift in policy under the new governor,” said Peter Attard Montalto, an emerging market economist at Nomura in London.

Kganyago “is likely to be just as open and candid, in our view, as Gill Marcus, and so we expect the communications style, including in the monetary policy committee [MPC] statement, and the Reserve Bank bluntly calling out South Africa’s issues, to remain unaltered”.

In more ways than one, Kganyago and Nene are joined at the hip as their appointments have come at a very challenging time for the South African economy. Not only is it grappling with structural issues like power supply constraints and a ballooning current account deficit, it also faces the menace of stagflation, a toxic mix of stalled growth and rising inflation.

In his position as central bank governor, Kganyago will now have to tread the very same fine line as did Marcus, that of ensuring price stability, most obviously by raising interest rates in the months ahead, while at the same time fostering growth.

Obvious choice

It was telling that in his brief acceptance remarks yesterday Kganyago jokingly said he had Nene’s phone number and that he knew where he resided. The sub-text of this is that Kganyago knows full well that he along with Nene hold critical policy levers to try to extricate South Africa from its current economic malaise.

The primary objective of the Reserve Bank was to protect the value of the rand in the interest of balanced and sustainable growth, Kganyago told reporters yesterday.

“Growth can’t be balanced if there are internal and external imbalances,” he added.

On policy continuity, Kganyago said: “I don’t have to reinvent anything” and he would carry on where Marcus left off. He will lead his first MPC meeting as governor a week after Marcus departs.

At the last MPC meeting the bank left its benchmark repo rate unchanged at 5.75 percent and cut its 2014 growth estimates further to 1.5 percent from 1.7 percent previously.

There was no word on who will replace Kganyago as deputy. During his time at the bank he has overseen banking supervision, financial stability and exchange control regulation, and the bank’s risk and compliance units.

Sim Tshabalala, the chief executive of Standard Bank, congratulated him, saying: “We see this internal appointment as demonstrating the depth of skill and experience embodied in the Reserve Bank.

“Governor Marcus successfully led the Reserve Bank through a challenging period and significantly advanced South Africa’s proud tradition of strong, wise and independent central banking. We are confident that governor Kganyago will continue and add further lustre to this tradition.”

Marcus becomes the first central bank governor in the post-apartheid era to serve a single five-year term.

Follow Ellis Mnyandu on Twitter: @Ellis_Mnyandu

Related Topics: