South African Reserve Bank instability concerns

Following the resignation of a Deputy Governor of the South African Reserve Bank (SARB), Kuben Naidoo, there are fears of instability and a potential deadlock at the Bank’s Monetary Policy Committee, which determines the country’s interest rates. 

Naidoo tendered his resignation almost 18 months before his second five-year term was due to end in March 2025 and only a few months before Governor Lesetja Kganyago’s term is set to end. 

President Cyril Ramaphosa, who appoints governors at the bank, has yet to accept Naidoo’s resignation, presidency spokesman Vincent Magwenya said in a text message to Bloomberg.

“Naidoo has expressed a desire to resign,” he said. “The matter is still under consideration.”

Naidoo joined the Bank as an adviser to then-Governor Gill Marcus in 2013 and was appointed deputy governor two years later. In his present role, he oversees the financial stability and currency cluster. 

“Naidoo is very much respected in policy circles and will be missed,” said Razia Khan, chief economist for Africa and Middle East at Standard Chartered Bank. “Until a reason is given for his departure, it is likely to create some uncertainty.”

Financial sector expert and portfolio manager at Denker Capital, Kokkie Kooyman, also said that the timing of the resignation is unnerving to 702, given the crucial role the SARB plays. 

Kooyman was also concerned that the resignation of the most senior Deputy Governor may occur just months before the Governor’s term ends, with the pool to find his replacement diminishing. 

The SARB cannot afford to experience leadership stability at a time when it is playing a particularly important role in the economy through its fight against inflation and protecting the currency. 

Kooyman also hinted at why there might be instability at the SARB and why Naidoo chose to leave. 

“There is a lot of talk that the SARB must play ball with the government and not hike interest rates because of the impact of it on the budget,” Kooyman said. 

The resignation of Naidoo also allows President Ramaphosa to bring new leadership into the Reserve Bank prior to a national election next year. 

Naidoo had always been vocal and clear about the Reserve Bank’s independence and the government’s rising debt burden. 

Increased political pressure 

Lesetja Kganyago has repeatedly emphasised the SARB’s commitment to tight monetary policy and dismissed critiques from politicians calling on the Reserve Bank to relax its stance on inflation. 

The governor has come under increasing pressure from the ruling party, with ANC Secretary General Fikile Mbalula calling for the Finance Minister to push the SARB to refrain from further interest rate hikes.

There have also been repeated calls from within the ANC and other political parties for the SARB’s mandate to change, and even some calling for the nationalisation of the Reserve Bank. 

When asked if the SARB should better explain the benefits of higher interest rates to savers, Kganyago took the opportunity to address political critiques of the Reserve Bank’s tight monetary policy. 

The governor reminded the government that both savers and borrowers are voters. 

“I do not understand why political leaders speak as if the only people who elect them are borrowers – it does not look like savers matter. Once savers have stopped saving, who will the borrowers borrow from? They need the savers,” Kganyago said. 

Higher interest rates result in higher returns for those with savings accounts, while fixed-income investments such as government bonds provide higher yields. 

Purchasing government bonds is crucial for a modern economy as it provides funding for the government to perform its functions and, ideally, make large investments in infrastructure. 

“Nobody is speaking for the savers, but the more savers we have, the more we will be able to meet our financing needs,” Kganyago said. 

Critics believe that the Reserve Bank’s tight monetary policy has made borrowing more expensive and reduced consumer spending, harming economic growth.