Reserve Bank Governor Lesetja Kganyago emphasised the independence of the monetary authority on Tuesday and defended the organisation’s mission to stay outside of political control.
Kganyago made these comments in a statement after he returned from Davos, Switzerland where he attended the World Economic Forum.
The Sarb has to be insulated from short-term political pressures as it gets in the way of being a successful organisation, he said.
Kganyago said that “in countries where central banks are captives of the political process, they tend to be willing to fund whatever government wants or to adjust monetary policy to suit election timetables”.
“Ultimately, these come at a huge cost to the economy, paid with an inflation tax, which is levied disproportionately on the poor and vulnerable people in society.”
He said that central banks have a mandate to act correctly and uphold the rule of law.
“You also get central banks that let banks misbehave, take huge risks, then extract bailouts from the public purse to save the financial system. In the short term, central banks can make themselves popular by providing cheap money and encouraging credit sprees,” Kganyago explained.
“Conversely, central banks can also make themselves deeply unpopular by interrupting the ruling party by insisting on protecting price and financial stability.”
There needs to be stability within the organisation, which, according to the Sarb governor, will in turn ensure currency stability.