S.Africa cbank role in financial stability explicit

The South African central bank's mandate has been extended to make explicit its role in maintaining financial stability, bank chief economist and advisor to the governor Monde Mnyande said on Friday.

In a speech prepared for a leadership forum, Mnyande reiterated that a letter to Reserve Bank Governor Gill Marcus from Finance Minister Pravin Gordhan last month reaffirmed the bank's flexibility in reacting to supply-side shocks in pursuing its primary focus of price stability.

"On 16 February 2010 government clarified and extended the mandate of the bank," he said. "The letter reaffirmed the role of the bank in overseeing and maintaining financial stability and, in the aftermath of the global financial crisis, has now also made this financial stability role an explicit part of the bank's mandate."

Gordhan's letter said the recent global financial crisis had demonstrated the importance of a stable and well-regulated financial sector and the need for central banks to have a deeper understanding of the banking sector and financial stability.

In a radio interview last month, Gordhan also said he had stressed to Marcus that while the inflation target of 3 to 6 percent remained in place, the central bank's mandate allowed for deviations to account for job losses, economic growth and credit demand and other factors.

The government's labour union allies have demanded more reductions in the central bank's repo rate to help boost economic growth and create employment after almost 900,000 jobs were lost during recession last year.

The Reserve Bank left the repo at 7 percent for the fourth consecutive time in January -- citing balanced inflation risks and signs of economic recovery -- after cutting it 5 percentage points between December 2008 and August 2009.

On Friday, Mnyande said the letter made clear the 3 to 6 percent target range remained and that policy responses should take into account the factors that might impact on balanced and sustainable growth.

"Policy responses should have due regard to the factors that might impact on the attainment of balanced and sustainable growth, such as the source of the inflation shock, magnitude of the gap between actual and potential economic growth, credit extension and asset bubbles, employment, and the stability and competitiveness of the exchange rate."

He said South Africa's economic recovery was seen subdued, with growth below potential for "some time" but added that there were signs retail trade was recovering from earlier lows. He said CPI inflation, which slowed to 6.2 percent year-on-year in January from 6.3 percent previously, was seen back in the target band in March and would remain there for the forecast period.