Central banking is supposed to be boring. Financial markets don’t like surprises, especially negative ones. Yet the leaked news of the intended resignation of Reserve Bank deputy governor Kuben Naidoo, 52, 18 months before the end of his second term, is certainly a negative surprise, given his depth of experience.
Central bankers are meant to grow old in their roles, but nobody is reading anything sinister into Naidoo’s decision. Still, once the news broke, the Bank and the presidency (whose job it is to appoint the governor and three deputy governors) should have immediately issued a joint press statement confirming Naidoo’s plan, outlining the reasons for it and announcing his exit date after the November 23 monetary policy committee (MPC) meeting.
That both the president and governor Lesetja Kganyago have apparently known for months about Naidoo’s wish to resign, ostensibly to pursue new career challenges, makes their failure to respond quickly with a calming statement remiss. On the upside, the fact that the markets haven’t blinked suggests the Bank’s credibility is deeply entrenched.
While the loss of Naidoo after almost a decade at the Bank is a pity, there is enough depth of expertise at the Bank for it to continue to play its mandated role without a hitch, even though there’s no clear successor to Naidoo from within senior ranks.
Some feel the opportunity should be taken to change the composition of the MPC to improve its technical capacity
The market has been quick to speculate how Naidoo’s exit could affect the balance of power on the five-member MPC, where he is widely regarded as a “dove” and a useful counterweight to Kganyago’s hawkishness.
But make no mistake, the entire MPC is hawkish, as behoves the inflation-targeting central bank of a country with such poor fundamentals. In South Africa, even the doves have to grow talons.
Even so, if in the unlikely event that Naidoo is absent from the November MPC meeting, this would probably tilt the vote (which in July and September was split three to two in favour of not hiking rates) into a two-two split, thus giving Kganyago, as the chair, the deciding vote. This makes it more likely the MPC will hike in November.
In short, once Naidoo leaves, it raises the risk of MPC decisions ending in a deadlock. In the past, the Bank has operated with only two deputy governors for long periods, but it would clearly be desirable to replace Naidoo quickly.
The lack of obvious succession planning has now put the spotlight on the Bank’s building problem: next year the terms of Kganyago and the two other deputy governors, Rashad Cassim and Fundi Tshazibana, all expire. Naidoo’s exit could make it more likely that all three are offered new five-year terms by President Cyril Ramaphosa, since he will surely want continuity at the Bank under people the markets respect.
Some feel the opportunity should be taken to change the composition of the MPC to improve its technical capacity. When the MPC was instituted by then governor Tito Mboweni in 1999, it had 15 members. This was whittled down to seven and, more recently, to five — all Bank employees. Some feel boosting the MPC back to seven would create more diverse debate.
Others would go further and expand it to include external experts. But in South Africa, this will inevitably come with political risk as it will be tricky to find candidates who are highly regarded monetary policy experts and also totally independent.
Clearly, if the Bank must evolve, it must do so in considered, incremental ways that keep the fight against inflation front and centre. Naidoo’s exit, though disappointing, should not change anything for the worse, as long as the presidency continues to value the Bank’s professionalism and independence.
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