Business Day 7 June 2013 MARCUS IN STRONG PLEA FOR DECISIVE LEADSHIP Marium Isa, Economics Editor Governor is very clearly placing pressure on Zuma for changes RESERVE Bank governor Gill Marcus has delivered her strongest warning yet to the government that "decisive leadership" is needed to tackle South Africa’s domestic challenges, which had reached "crisis proportions". Her remarks on Thursday were seen as sharp criticism of the government that not enough is being done to address factors undermining confidence in South Africa and which could eventually lead to a credit rating downgrade. They come just a week after President Jacob Zuma made a live television intervention in a bid to reassure investors that steps were being taken to restore confidence in South Africa’s embattled mining sector. Ms Marcus’s rebuke is all the more powerful given that she is an African National Congress stalwart who is taking a tough line on the government and asserting her independence at the Bank. Historically, the Bank has not involved itself in politics while the government has not interfered in its monetary policy decisions. "She’s become increasingly more outspoken about political issues without giving specific guidance," Econometrix Treasury Management market analyst Rob Price said. "I think she is very clearly placing pressure on Zuma and other policy makers to make changes." Ms Marcus said South Africa needed a co-ordinated range of policy responses, which were largely beyond the scope of monetary and macroprudential policies — areas of the Bank’s responsibility. "Domestically, we are facing challenges of crisis proportions that require a co-ordinated and coherent range of policy responses, which are largely beyond the scope of monetary and macroprudential policies alone to deal with," she said. However, she added: "Much more important than the precise elements of a strategy is for the government to be decisive, act coherently, and exhibit strong and focused leadership from the top. "There is clear recognition that South Africa faces significant challenges; what is required is decisive leadership that consistently demonstrates a co-ordinated plan of action to address them. This will go a long way to restoring confidence, credibility, and trust." She was speaking at a conference hosted in Johannesburg by the Bureau for Economic Research. In her speech, Ms Marcus made it clear that interest rates could not address South Africa’s immediate problems — labour unrest, electricity constraints and financing the deficit on its current account, the broadest measure of trade in goods and services. The outlook for economic growth was "extremely precarious", given the weak global environment, long-term structural constraints and the shorter-term domestic issues which had undermined both domestic and foreign confidence, she said. "These are not issues that monetary policy can solve." Ms Marcus also defended the Bank’s current tolerance of high inflation, saying it was a recognition of the weak state of the economy. She repeated that there were significant "upside risks" to the inflation outlook generated by the rand’s depreciation and possibly also from wage settlements that exceeded inflation and productivity increases. Nonetheless, the effect of the weak exchange rate on inflation had been "relatively constrained" compared to previous periods of volatility and depreciation. "This is probably due to low growth and relative lack of pricing power in a number of sectors of the economy." Another factor could be that recent sharp moves in the exchange rate were being seen as "excessive". According to the Bank’s estimates, a 10% depreciation of the rand results in a two percentage point rise in inflation, she said. The rand was trading at R9.98/$ on Thursday afternoon, well off a four-year low of R10.28/$ last week but still 12% down on a trade-weighted basis year to date. Its steep slide has virtually quashed speculation that the Bank may cut interest rates again to spur the flagging economy. Efficient Research chief economist Dawie Roodt said in a research note on Thursday that the weaker rand was harming the economy by pushing up the cost of living and reducing the value of wages, shares, houses, pensions, and gold. It was also complicating business decisions. "Expect inflation, social tension, weak economic growth, high unemployment and poverty after the collapse of the rand," he said. "Personally, I think the currency will regain some lost ground, but much damage has been done already and the consequences will be painful." Ms Marcus said central banks faced a bigger challenge today from the need to expand their financial stability mandate. "Monetary policy should explicitly take financial stability issues into consideration, either as a secondary objective or as an objective with equal footing," she said. bdlive.co.za/economy/2013/06/07/marcus-in-strong-plea-for-decisive-leadership-in-sa
Posted on: Fri, 07 Jun 2013 07:12:35 +0000
Trending Topics
Recently Viewed Topics
© 2015