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There have been calls by the African National Congress (ANC) alliance partners in the past for the review of the mandate of the South African Reserve Bank (SARB)...

Congress of the People (COPE) notes with caution the new Minister of Finance Pravin Gordhan's intention to engage with the Cosatu on matters relating to the monetary policy functions of the SARB. There are calls also by private institutions calling for the adjustment of the inflation target in order to aggressively accommodate a quicker economic recovery.

While COPE is in support of determined efforts to revive the economy, it is equally concerned with the employment of populist interventions that may prove disastrous in the medium to long-term. It is important to note In terms of section 224 of the Constitution Act of 1996 and section 3 of the South African Reserve Bank Act of 1989 the primary objective of the SARB is to protect the value of the Rand in the interest of balanced and sustainable economic growth.

While some in business and labour in general support the aggressive reduction on interest rates as a means of stimulating economy recovery, it is important that we draw instructive lessons from experiences of other economies which find themselves in the quagmire of recession. In 2008 world's top central banks, in a panic response to the global financial crisis, embarked on a coordinated rate cuts in a move that was aimed at boosting sentiment in volatile markets, propping-up liquidity and jump-starting the world economy. Months later the world is in even deeper economic crisis.

COPE is concerned that the immediate priorities of the ANC government may be the pursuit of populist economic policies in order to artificially boost economic growth and fulfill on its elections promises. The problem the country is facing is the negative consequence of negative real interest rates if the inflation target is revise upward, and consequently resulting in aggressive cutting of interest rates.

Such eventuality would leave no motivation for savings or investing in low-yielding securities like bonds and would serve to increase volatility in the markets as investors opt to invest in high-yielding assets such as equities where returns are expected to be significantly in excess of inflation. Speculation in the market would increase together with the volatility as investors chase higher returns to offset purchasing power loss. The consequences of such volatility in the markets are now well documented. Panic and paranoia would soon grab the market, companies would collapse and job losses would become more pronounced.

COPE encourages the pursuit of prudent and non-populist economic policies in order to ensure sustainable economic growth, job creation, reduction in poverty, and elimination of structural inequalities that currently exist.