Reserve Bank: briefing

Meeting report

FINANCE PORTFOLIO COMMITTEE
8 September 1999
RESERVE BANK: BRIEFING

Documents handed out:
Graphs of Economic Indicators for South Africa - see Reserve Bank website
South African Reserve Bank 1999 Annual Economic Report

SUMMARY
With the hope of achieving greater transparency, the Governor of the Reserve Bank, Mr Tito Mboweni, was invited by the committee to give a presentation on South Africa's economic situation. Mr Mboweni gave the initial address, focusing on the developments in the Reserve Bank, the responsibilities of the deputy governors and the governor of the Bank, and representativeness in employment in the Bank. He also spoke about two policy issues: inflation targeting and financial services regulation. Members of the Reserve Bank Research team then gave presentations on the state of the South African economy.

MINUTES
Transparency
Tito Mboweni spoke about the general lack of public knowledge about the functions of the Reserve Bank. He wants the public to have a better idea about what it is that the Reserve Bank does. He emphasised the need for the Bank to have greater transparency and said that having better contact with Parliament, the finance committee in particular, would be the best way to do that.

Developments in the Reserve Bank
Mr Mboweni explained how some of the Bank's functions have been restructured as with the formation of several new committees. These committees are:

• the monetary policy committee,
• the budget committee,
• the management committee,
• the monetary policy implementation committee,
• and the payments and currency committee.

Mr Mboweni spoke about how the Research Department (formally the Economics Department), under the Governor, has taken on new areas of research. These areas are monetary policy research, international economic research, research into labour market and social issues. These developments were outlined in his recent address.

Employment equity in the Reserve Bank
Mr Mboweni said the Reserve Bank has as one of its priorities to move towards employment equity within the Bank. Noting the inequality within the Reserve Bank itself, at present out of 1997 employees the figures on the employee and management composition of the Bank are as follows :

• 1172 are white and
• 825 are black.
• 86% of management is white
• while 13% are black.
• only 16 women in management.

Mr Mboweni said that in five years' time the Bank sought to have achieved 50% employment for both blacks and whites with 33% of those employed being women.

Policy Issues
Mr Mboweni spoke about two policy issues: inflation targeting and financial services regulation.

About inflation targeting, Mr Mboweni said that the government was in complete agreement that inflation targeting would help to create greater transparency in the Reserve Bank. He also stated that at present the Reserve Bank did not have the capacity to do the necessary econometric modeling. Because of this he said that to give any sort of data as to when inflation targeting would come into effect would be premature. To help remedy this situation the assistance of many in the developed world has been sought.

With respect to financial services regulation Mr Mboweni said that the key issue was the integration of a regulatory environment for financial services.

Mr Mboweni also took a moment to state that it was the Minister of Finance and not the Governor of the Reserve Bank who has the power to dictate terms of exchange control.

Economic Summary
A presentation on South Africa's recent economic progress in the form of a series of detailed graphs was given by two members of the Reserve Bank research team.

Questions

Dr. R Davies (ANC) asked about de-mutualisation and its impact on the Gross Domestic Product and what exactly was meant when the Bank said that South Africa's inflation rate should be "in step" with the international community.

Mr Mboweni said that South Africa must be aware of its position in the global context. While South Africa itself is a developing country, most of its trading partners are in the developed world. South Africa must therefore be very careful to remain "in step" with the global community with respect to inflation.

Mr K. Andrew (DP) asked three questions. The first, how to increase savings and foreign direct investment (FDI). The second asked what was the role of Parliament in the inflation targeting process. The third question asked for how long have the Gross Domestic Product (GDP) figures been adjusted to comply with the United Nations.

To the first question Mr Mboweni responded that due to the lack of an increased rate of savings, steps would have to be taken to attract foreign direct investment. To the second question Mr Mboweni said that a mechanism for discussion between the Reserve Bank and the Finance Committee must be found. He suggested that a consultation on inflation targeting alone should be held by the end of the year. He emphasized the need to bring the business community and other organized parties into the discussion, in an effort to bring the Bank closer to the people.

He also said that a work schedule will be drawn up and given to the Finance Committee. In response to the third question, the research department said that the National Accounts have been redone from 1990 onwards and that all post 1946 figures have been adjusted to the new model.

Mr A Feinstein (ANC) asked about the need to integrate the regulatory framework. He also asked for the governor's thoughts on the recent decline of repo rates.

With respect to the second question Mr Mboweni responded that a number of factors must be looked at before signals are sent to the market. A Deputy General added that these rates will not be the new rate of decline for the entire year as some believe. On the first question Mr Mboweni said that much discussion is needed. He said that the supervisory capacity must be integrated as well. He pointed out that the banking system is a strength in South Africa and must remain so if any monetary policy hopes to succeed.

Dr. G Koornhof (UDM) asked if the Governor foresaw net open position of foreign currency declining and if so, to what levels. He then asked about the nature of a more transparent relationship with the Finance Committee and if the forecasting models which are in existence can be shared with the committee.

Mr Mboweni replied that transparency is very important as people must understand why the Reserve Bank makes the decisions that it does. He said that the Reserve Bank will issue a statement every time it changes its stance on monetary policy and will publish a biannual monetary policy review which will review development in monetary policy over the course of the year.

The Deputy Governor said with respect to net open position, that it needs to be reduced but in such a way that it is a permanent reduction.

The Chairperson then closed the meeting as time had run out.