gill marcus : has monetary policy independence been undermined? address by ms gill marcus, governor of the south african reserve bank, to the 1926 rand club, johannesburg, 30 november 2010. * * * introduction we are nearing the end of a difficult year, a year that began with so much promise but is now ending on a note of high uncertainty. on the global front, the expectations of a normalisation in the advanced economies were proved to be wrong, and indications are that low growth and accommodative monetary policies are likely to be sustained for some time. this has contributed to the strength of the rand exchange rate as capital continues to flow out of the advanced economies in search of higher yields. domestically, growth has also disappointed. however the strong rand has contributed to the more benign inflation environment which, along with a persistent negative output gap, has contributed to lower interest rates. during the year there has been a focus on issues relating to monetary policy independence in response to the letter from the minister of finance clarifying the mandate of the bank, as well as the recent new growth path document, in which reference was made to a looser monetary policy stance. there are perceptions that these documents have undermined the independence of the bank, and there has been a tendency to over - interpret monetary policy actions in terms of these discussions. for example, when the repo rate was reduced at the previous meeting, some analysts argued that because there was no economic rationale for this move, it therefore must have been politically inspired. a few days later, when the disappointing growth figures were announced, these analysts conceded that our decision was vindicated on economic grounds. there are some who believe that any reference we make to growth or unemployment is an indication that we are not independent enough. at the same time there are elements in society who believe that we are too independent and that the goals of monetary policy should be changed. in my talk this evening, i will state the bank ’ s perspective on these issues and then briefly review our monetary policy actions over the past year. monetary policy independence in discussing the issue of monetary policy independence, it is useful to distinguish between goal independence and instrument or operational independence. the former refers to the setting of the objectives of the central bank, while the latter relates to the actual implementation of the mandate that is given to the bank. it is generally accepted that the goal of monetary policy should be set by the elected representatives of the country. but even here choices are constrained by what monetary

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