By: Sisanda Ngongoma
South African Reserve Bank Governor Lesetja kganyago made his second visit after two years in Nelson Mandela University at the Second Avenue Business Campus on Thursday, to lecture about inequality and monetary policy in South Africa.
The governor indicated that democracy in South Africa is faced with the biggest challenge, which is that of social inequality. Saying debates about inequality have increased into higher volume in recent years in academia, policy circles and in the broader political space for central banks especially those in advanced economics.
Inequality has become an inescapable issue and experimental policies like quantities easing have been blamed for making it worse.
The Governor stated that, critical thinking amongst South Africans is key in economically moving the country forward.
Mr Kganyago said ‘’I would like to clear up misconceptions about interactions between the Inequality and monetary policy, inequality has actually been declining because of the sustain growth in emerging markets in other countries”.
In South Africa inequality has been percistantly high but the composition of inequality has changed.
“People often do not know where their family feeds in south Africa’s income distribution. The relationship between inequality and monetary policy does not quite work the way people usually think, lower interest rates typically was an inequality. Said Kganyago.
He further stated that the reduction in inequality is achieved through better economic policy-making, growth in world of trade, the spread of technology and more education.
Mr Kkganyago suggested that south Africa is at 0,7% on gill co-efficient which makes the most unequal country in the world. people do not understand the contribution of monetary policy saying higher inflation creates more jobs that go to poorer people because more households are more indebted.
The Governor explained the four most important channels through which monetary policy affects inequality, which are, borrowing costs, asset prices, the employment wind growth and inflation. “The decision to go for loose monetary policy is often to worsen inequality and making it more extreme, South Africans households borrow for and what rate of interest depends mostly on their jobs and their income, but they do not understand that.” He said.
According to the National Credit Regulator [NCR], reports show that there are 25million credit active people in SA at the end of 2017, but only 16million people are permanently employed ,most loans are for motor vehicles and are loaned by the working class threshold that earn average salary.
The Governor encouraged South Africans to use formal loans with less interest rates.
South Africa tends to get stronger economic growth and more job creation when the inflation is low. The increase in demand, mostly from stronger productivity growth and investment slowly levels the playing ground.