Lesetja Kganyago: Independence and policy flexibility - why should central banks be independent?

Public lecture by Mr Lesetja Kganyago, Governor of the South African Reserve Bank, at Stellenbosch University, Stellenbosch 6 March 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Good evening, ladies and gentlemen.

Thank you for your kind invitation to come and speak at Stellenbosch University today.

At a time when our country is embarking on a course of political and economic renewal, I would like to focus for the time that I am here with you on the public good enshrined in our Constitution that concerns monetary policy. In particular, I would like to talk about why central bank independence matters for that broader public good and how it relates to achieving our inflation-targeting objective.

The constitutional mandate and independence

Our Constitution provides the mandate for the South African Reserve Bank (SARB): protect the value of the currency in the interest of balanced and sustainable growth. The Constitution sets our mandate in this way for a simple reason: it is an expression of a public good. When we attain that public good, it helps us to reach the kind of economic growth we want. It does not mean that achieving our mandate alone will Page 2 of 11

necessarily generate that outcome. But it is necessary for achieving it. Many other policies and behaviours play similar and necessary, but not sufficient, roles.