On the 19th of May, the South African Reserve Bank announced that the repurchase rate would be hiked by 50 basis points effective from 20 May 2022.
This was not the first time that the central bank announced a hike this year.
On the 24th of March, just three days after Human Rights Day, the Monetary Policy Committee (MPC) took the unanimous decision of hiking the repo rate by 24 basis points, taking it to 4.25%.
The reasons cited then were the emergence of the global oil price crisis as well as the attendant inflation pressures.
With the latest increase taking the repo rate to 4.75%, set against the backdrop of increases in food prices, premiums on insurance products, mortgage repayments and credit interest rates, the continual push of consumers against the wall begs the question: does the South African Reserve Bank adhere to any notions of (social) justice?
The mandate of the central bank is generally to protect the value of the rand by making adjustments to the interest rate offered to commercial banks who will also lend at above the level of the prime rate in order to generate profit.
During moments of economic recession, basic economic thought suggests that a central bank can increase money supply by lending at lower interest rates so as to increase the demand for borrowing both on the part of commercial banks and their customers.
The other two techniques include lowering the reserve requirements and buying government bonds to make sure more money is in circulation.
In a counter-intuitive move, the bank has decided to err on the side of a conservative and counter-intuitive outlook by implementing contractionary monetary policy instead of providing monetary relief to households whose common experience has been job losses (and therefore an increasing unemployment rate), wage increases pitched at lower than the inflation rate, a 37% increase in the price of cooking oil, and fuel hikes that make Europe’s transport systems more enviable than ever.
While the purpose of the bank is to protect the rand by making adjustments that deliver its stability, what is often-forgotten is that economics is a social science despite its technical reliance on quantitative formulae. Various research outputs from the Centre for the Study of Violence and Reconciliation, be they studying the reasons for coups d’etats on the continent, xenophobia in the country, or the 2021 July unrests, show the inextricable link between the prevalence of violence in societies and the socio-economic conditions that create the conditions for violent responses to challenges.
The insistence on contractionary monetary policy is a blight offering insight into how the bank does not read its mandate against the section 27 socio-economic rights enlisted in the Constitution.
The increase in instances of reported murders in Cape Town and Johannesburg, missing persons (some of whom are kidnapped for the withdrawing of people’s already ailing bank accounts), muggings and other violent crimes in general does not mean crime is a moral choice made by criminals but rather an economically constructed and inevitable end.
There ought to be a way in which the Reserve Bank can find for its role in how it manages its affairs in terms of these factors so as to not regard itself as merely a numbers’ institution but whose decisions affect social outcomes.
Recent public debates in which a Public Protector Report in 2017 also participated point to the need to review the mandate of the esteemed central bank. Words that have flared up anxieties include ‘nationalisation’, with the fearful raising concerns about the institution’s independence and its stature in lieu of state corruption and incompetence. While these concerns are real and valid, it does not mean that South Africa has no incentive to re-imagine the role of Reserve Bank.
Historian and African scholar Ali A. Mazrui rightfully points out that there are two schools of thought on coloniality.
The first is the Episodic School which believes that colonisation was an event frozen in time. The second is the Epic School which identifies elements of colonialism that enjoy unmitigated continuity.
Relevant to how we think of the reserve bank, South Africa was integrated into the norms and standards of the global financial system, thereby importing a model of the central bank distinct to Euro-North and American institutional design. It makes sense that this was the case for the transitional periods in which the ANC tried to make sense of and implement its Reconstruction and Development Programme (RDP) and Growth Economic and Development (GEAR) economic policies. Escaping the colonial enclave should be part of the next part of South Africa’s long transition. Redefining the role of the state in running the economy is imperative in securing and improving upon the developmental state.
Another element driving the impossibility of the Reserve Bank rethinking its place and impact in difficult economic times relates to education. Universities in South Africa are still valorising and imparting upon their commerce students neo-classical economic thought in which the proffered assumption is that economic growth is a project unconsciously driven by the private sector or – as other politicians would scapegoat - entrepreneurship.
What this pedagogical approach does is to miss the opportunity to rethink institutions such as the SARB. When the South African Reserve Bank absorbs ‘new’ talent, it is for continuity’s sake at the expense of different possibilities.
Those absorbed in other institutions such as commercial banks find themselves reinforcing the notion of economics as a hard rather than a soft science affecting the lives of people living under a pandemic.
What the reserve bank earns as favour from rating’s agencies such as Moody’s and Fitch’s when it works against poor with contractionary monetary policy is that South Africa is lifted from any level nearing ‘junk status’.
The coloniality of this is that our economic institutions therefore chronically pander to speculative external forces who have no sources or documents to refer to in order to understand SA’s long-term economic project.
This threatens a country’s self-determinism which is a critical tenet of democracy. In a decolonial turn of events, and one that appreciates the work of the Reserve Bank as inherently interdisciplinary (whether they care for it or not), the bank’s nationalisation could yield different results if the professionals within it would adopt an economic growth strategy.
If critical institutions held a conversation between each other, how would it play out? ESKOM’s woes drive away investment. SAA and Transnet face their fair share of challenges related to corporate governance. SOE’s in general have been decimated by political interference.
The NPA has to clutch at straws trying to make itself visible in the wake of the Zondo Reports which points fingers at proponents of state capture. Treasury continues on its ‘austerity’ path but has emergent crises like floods on its table. If functional institutions cannot side with the public by providing relief, who or what will?
All the Reserve Bank should do is to adopt an egalitarian notion of justice that is unencumbered by external influence. In addition to making inflation averse adjustments, the bank must mitigate the risks of pinching the poor majority.
Not doing so may cause political instability similar in tenor to that which gave rise to the July unrests – the cost of which compromised R50-billion of the economy.
A looming elective conference of the ruling party cannot be ignored. Nationalisation of the SARB is but one option. Intellectual recalibration or decolonisation is as another Whichever option prevails needs all hands of justice on deck.
In the words of contemporary philosopher, economist and ANC Youth League member, Zuko Godlimpi, what is causative to our woes “is using technocratic thinking to deal with long-term structural problems…”. Since the institutional design treats fiscal policy as the child of Treasury and monetary policy as that of the central bank, the moment beckons for us to think about how these children can be part of a healthier blended family to avert a more violent future wrought on by economic strife.
By Siphokuhle Mathe
Siphokuhle Mathe is an independent researcher, political economist and communications specialist.