New SARB-governor must protect purchasing power, scrap exchange controls
Thursday, October 9th, 2014
Trade union Solidarity today called on Mr Lesetja Kganyago, newly appointed governor of the South African Reserve Bank (SARB), to steer the bank back to its mandate of maintaining price stability. The union also requested the new governor to finally scrap the obsolete system of exchange control which dates from the apartheid years.
Kganyago takes the SARB’s reins in an environment where the upper bound of the SARB’s inflation target is breached and where South Africans are discouraged from saving and suffer continuous and significant erosion of their purchasing power, both internally and externally. The consumer price index has increased by about 6% per year over the past decade, while South Africans now require 80% more rand to buy American dollars than they required in 2004.
According to Piet le Roux, senior economics researcher at the Solidarity Research Institute, inflation has in recent years forced South African workers to pay a high price in what actually amounts to stealth taxation. “Through inflation, workers are subjected to a stealth tax, eroding the gains made at the bargaining table. By aiming to reduce inflation to, or even below, the lower bound of the current inflation target of 3% to 6%, Kganyago has the opportunity to lessen the burden of this stealth tax. Kganyago should consider using his position to advocate a downward revision of the inflation target, as was specifically envisaged at the inception of South Africa’s formal inflation targeting regime in 2000,” Le Roux said.
The union also expressed its wish that Kganyago would at long last scrap the obsolete exchange controls, which currently puts an unnecessary heavy administrative and financial burden on South Africans and South African businesses.
Le Roux added that Solidarity wishes Kganyago well in the difficult task ahead of him.