Kganyago Pledges Continuity at South African Central Bank

Lesetja Kganyago, appointed as South Africa’s 10th Reserve Bank governor, has pledged to continue the policy path of predecessor Gill Marcus and pursue price and financial stability.

“It is a continuum that we have seen since Ms. Marcus arrived at the bank in 2009 and I do not have to reinvent anything, I just have to carry from where she had left,” Kganyago told reporters today in the capital, Pretoria, after President Jacob Zuma said he would replace Marcus.

Kganyago, who turns 49 tomorrow, will take office on Nov. 9, Zuma told reporters. Marcus, 65, said on Sept. 18 she wouldn’t renew her contract after her five-year term expires. Zuma’s pick was one of two favored candidates, along with Deputy Governor Daniel Mminele.

“Kganyago has been a member of the Monetary Policy Committee, so there will be no significant break or change in the policy,” Peter Worthington, an economist at Barclays Plc’s Johannesburg-based investment banking unit, said by phone from Cape Town. “He will be facing the same challenges that Marcus faced. We have very slow growth and persistent inflation, either above or at the upper end of the target range.”

Aside from price stability, the Reserve Bank also has an explicit mandate from the government to ensure financial stability, said Kganyago, who has overseen banking supervision and financial surveillance at the bank.

Balanced Growth

The main objective “of the South African Reserve Bank is the protection of the value of the currency in the interest of balanced and sustainable growth,” he said. “Growth can’t be balanced if you have a state of financial instability.”

Kganyago joined the bank in 2011 after serving more than seven years as head of the National Treasury, where he worked closely with current finance minister, Nhlanhla Nene. He helped to steer South Africa’s budget to a surplus between 2006 and 2008, managed the government’s borrowing and implemented fiscal policy.

The rand gained against the dollar after the announcement and was trading 1 percent higher at 11.2329 as of 4:52 p.m. in Johannesburg. That pared the currency’s depreciation this year to 6.6 percent. Yields on the benchmark government bond due December 2026 dropped nine basis points to 8.26 percent.

Kganyago will need to contain the fallout from the collapse of African Bank Investments Ltd. The central bank stepped in in August to save the Johannesburg-based lender after its share price plunged 95 percent. Moody’s Investors Service downgraded South Africa’s four biggest lenders on Aug. 19, adding to speculation that the sovereign credit-rating may be cut.

Financial Stability

“The singular task of central banks to exclusively focus on price stability is not enough to make sure that economic crises do not materialize,” Kganyago said. “Hence the world over, central banks have had this added mandate of financial stability.”

Educated at the University of London and London School of Economics, Kganyago spent time in his early career at the Congress of South African Trade Unions, the country’s largest labor federation, and in the ruling African National Congress.

“We have a little bit of concern about Kganyago’s connection with the trade unions and the ANC, which raises concerns about political involvement in the SARB,” Stanislava Pravdova, an emerging-market analyst at Danske Bank A/S, said by phone from Copenhagen. “That makes us a bit uncomfortable. We are concerned about whether the SARB will maintain its political independence.”

Inflation Target

Kganyago reiterated the bank’s independence today, saying that it will pursue its mandate “without fear, favor or prejudice.”

Marcus will leave the bank after a single term, during which time she kept interest rates near a three-decade low to support economic growth. Kganyago takes office with inflation above the bank’s 3 percent to 6 percent target, the economy poised to grow at its slowest pace since a 2009 recession and the rand weakening.

“As I take this role, central banks are faced with a range of challenges,” Kganyago said. “The world of central banking is not what it used to be. The world over, central banks are being faced with a challenge of having to balance the issue of growth and the issue of tackling inflation.”

Kganyago will chair his first Monetary Policy Committee meeting as governor on Nov. 19-20. The committee left the benchmark rate unchanged at 5.75 percent last month.

“Governor Marcus successfully led the South African Reserve Bank through a challenging period and significantly advanced South Africa’s proud tradition of strong, wise and independent central banking,” Sim Tshabalala, chief executive officer of Standard Bank Group Ltd., Africa’s biggest lender, said in an e-mail. “We are confident that Governor Kganyago will continue and add further luster to this tradition.”

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