LONDON – The ANC NEC Lekgotla on Tuesday surprised with specific references to changing the SA Reserve Bank’s Monetary Policy Committee (MPC) mandate, to implementing the Nasrec resolutions – exploring nationalisation – and even adding in that consideration should be given to quantitative easing (QE) to fund the developmental state.
All of these factors will be blocked by the current Reserve Bank and National Treasury leadership as well as viewed sceptically by the President in our view.
However, we think this is a key “fallout risk” issue. Ie whilst nothing may happen in the short to medium run in terms of actual change, severe damage can be done as these issues are pushed forwards.
We would caution investors here that this is a structural institutional issues and not about the July MPC meeting which is a separate short run matter. We read a few key issues in this announcement being made by the NEC:
- Moderates in the NEC appear to believe that this will “never happen” however this is now a stated ANC resolution. Parts of the ANC can point to this and say it has been agreed to and must be implemented.
- The backing for this came within the NEC from the leftist and rest extraction forces working together we believe. The former want to change the MPC mandate and get a more developmental institution, the latter want to control the Prudential Authority to stop a repeat of the bank’s actions blocking state capture in the past.
- This is a ratchet issue. We believe the left and rent extraction forces within the NEC are playing a very long game. As such they can wait out until Mboweni leaves as Finance Minister and move slowly step by step. The idea is now out of the bottle. Especially on QE financing of the developmental state.
- It is clear that moderates and reformists underestimate the importance of communications. Even if this is not going to happen this issue is of such fundamental importance to investors (domestic and foreign) you just don’t allow this to go into a statement as an easy route out. We believe they have lost control of communications in favour of Ace Magashule and other interests within the NEC.
We see no movement on these policies while Tito Mboweni remains as Finance Minister.
The risk is that this starts a popular debate on QE and on a jobs mandate for the Reserve Bank and so parliament can take up the mantel and the debate can take hold amongst the commentariat. This we believe is the intended strategy of those on the NEC who want change here.
Investors should not confuse the MPC mandate and the Reserve Bank mandate. The latter requires a change to the constitution but the former does not. This is highly complex and the Reserve bank and government dispute the process.
Government’s line is that the MPC mandate can be changed with a letter from the FinMin to the Governor. However the Reserve Bank maintain that it needs to be a mutual agreement between the two to safeguard its independence.
When this issue came up in 2012 it was swept under the carpet with all sides agreeing that letter wasn't a change, however our understanding is that the law is unclear and so the Reserve Bank could fight a unilateral attempt to change the mandate after, say, Mboweni, leaves.
The ANC Lekgotla statement comes on the heals of an interview this morning to City Press of new Deputy Finance Minister David Masondo where he seemed to back an expanded mandate and also, whilst recognising the distraction of nationalisation, talked to the fact that other central banks were generally nationalised.
We are watching Masondo carefully given he may be being groomed to be a Finance Minister after Mboweni is expected to leave in 12-18 months. National Treasury as an institution has a skill of bending principles to the conservative side but the past fallout from having more left-wing Ministers in place can be seen.
Peter Attard Montalto is head of capital markets research at Intellidex. The views expressed here are his.
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