South Africa’s Kganyago Says His New Term Insulates Central Bank From Election Cycle

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(Bloomberg) -- South African Reserve Bank Governor Lesetja Kganyago said uncertainty about the country’s political outlook will be resolved by next month’s election, while questions on what it means for the central bank have already been answered.

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“The president decided to insulate the Reserve Bank from the political cycle by taking a decision about the renewal of my term and that of my deputy governors,” he told Bloomberg Surveillance on Thursday in Washington.

President Cyril Rampaphosa announced in March he would appoint Kganyago to another five-year term at the helm of the central bank, assuring investors before the May 29 elections of policy continuity.

The vote is expected to be the closest since the end of White-minority rule in 1994, with polls showing the ruling African National Congress may lose its national majority for the first time since it came to power three decades ago.

While the ANC is expected to remain the largest party after the election, a decline in support below 50% will force it into a coalition with a smaller partner. If its losses are severe, it may be forced to coalesce with one of its main rivals, such as the business-friendly Democratic Alliance or the leftist Economic Freedom Fighters.

The SARB is an inflation-targeting central bank and its task is complicated by a weaker rand, which has slipped about 4% against the dollar this year, pushing up import prices.

“I think there has been a lot of negative news that has gone into the rand. There has been a lot of uncertainty,” Kganyago said, adding that if the worry was over the composition of the next government, the election result “takes away massive uncertainty.”

“There is a reason why we are focused on data and we are taken away from the political cycle — so we can actually make technical decisions and not be affected by the political cycle,” said Kganyago, who was attending the Spring meetings of the International Monetary Fund and World Bank.

South Africa’s annual inflation rate fell slightly in March to 5.3%, compared with 5.6% in February, but remains above the 4.5% midpoint of SARB’s target range, where it prefers to peg expectations. The central bank has left its benchmark interest rate at 8.25% since May in a bid to return inflation to that level.

Kganyago said it was premature to judge what the latest data means for monetary policy.

“There isn’t a discernible trend but a look at the components of inflation makes for an interesting read,” Kganyago said. “Food prices have continued their downward trend. They might be reaching the bottom. It’s too early to tell because we do not know the effects of El Niño.”

He separately said that a key question going forward is how much a drought affecting southern Africa will impact food supplies, amid concerns that the harm done to crops may lead to food scarcity.

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