Central banks everywhere play a critical role in
shaping the direction of a country’s economy. The South African Reserve
Bank’s main mandates are to ensure financial and economic stability and
to regulate the banking sector.
It achieves the first through monetary policy, which involves targeting inflation to prevent borrowing costs from rising and competitiveness of the economy from deteriorating. But the bank has been criticised for focusing too much on curbing inflation — it keeps inflation within a target range of 3%-6% — at the expense of economic growth.
The banking regulation arm is also facing a barrage of questions. The Conversation Africa organised three economic scholars to pose questions to the Reserve Bank governor Lesetja Kganyago.
NIMISHA NAIK: (a lecturer in economics, macroeconomics and mathematical economics at the University of the Witwatersrand): How should the Reserve Bank respond to the country’s recent credit rating downgrade? What approaches can it take to limit the potential decrease in investments to South Africa?
LESETJA KGANYAGO: A rating downgrade implies higher risk for investing in a country. As such (everything else being equal) a higher return is required to attract the same amount of foreign capital necessary to finance SA’s current account deficit.
As markets shift to reflect the higher return needed, the country’s currency might weaken. This adjustment may be compounded by foreign funds having to divest from SA as their investment mandates prevent them from holding noninvestment grade assets.
BDlive
It achieves the first through monetary policy, which involves targeting inflation to prevent borrowing costs from rising and competitiveness of the economy from deteriorating. But the bank has been criticised for focusing too much on curbing inflation — it keeps inflation within a target range of 3%-6% — at the expense of economic growth.
The banking regulation arm is also facing a barrage of questions. The Conversation Africa organised three economic scholars to pose questions to the Reserve Bank governor Lesetja Kganyago.
NIMISHA NAIK: (a lecturer in economics, macroeconomics and mathematical economics at the University of the Witwatersrand): How should the Reserve Bank respond to the country’s recent credit rating downgrade? What approaches can it take to limit the potential decrease in investments to South Africa?
LESETJA KGANYAGO: A rating downgrade implies higher risk for investing in a country. As such (everything else being equal) a higher return is required to attract the same amount of foreign capital necessary to finance SA’s current account deficit.
As markets shift to reflect the higher return needed, the country’s currency might weaken. This adjustment may be compounded by foreign funds having to divest from SA as their investment mandates prevent them from holding noninvestment grade assets.
BDlive
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