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South Africa’s central bank chief has warned counterparts in the world’s largest economies that their authority to set interest rates independent of political influence was under threat from rightwing populism.
Lesetja Kganyago, governor of the South African Reserve Bank, said institutions such as central banks were increasingly becoming the target of attacks, as democracies shifted to the right of the political spectrum.
“It used to be that the concern was about leftwing populism. But what the world’s now facing is rightwing populism,” he told the Financial Times from the G20 finance meetings in Cape Town, which he co-chaired. “And there’s one thing populists always do, which is to attack institutions.”
The remarks underscore the anxiety created by the rise of a radical brand of populism, tending to authoritarianism, that threatens the independence not only of leading central banks but also of multilateral institutions such as the World Bank.
Central bank independence was enshrined during the 1970s and 1980, as bank authorities across the world were handed control of interest rates after a wave of inflation proved difficult to tame in an environment where political interference in monetary policy was rife.
But the principle has come under renewed threat, notably from Donald Trump, who critics have accused of undermining the authority of the Federal Reserve. The US president told the World Economic Forum in January that he would “demand that interest rates drop immediately”, and recently criticised the Fed of doing “a terrible job”.
Only a limited number of elected leaders before Trump have sought to interfere in monetary policy, although Turkey’s President Recep Tayyip Erdoğan fired several central bank governors for not lowering interest rates as he wanted.
South Africa’s central bank also came under pressure from then-president Jacob Zuma in 2016, as his supporters demanded the constitution be amended to alter its mandate, arguing it should be “nationalised”.
In an address to the Arbitration Foundation of Southern Africa last month, Kganyago said the bank “felt duty bound to defend the independence of the SARB as a key institution of our democracy”, so it went to court to overturn official reports arguing that the mandate be altered. “The court ruled emphatically in our favour,” he said.
The G20 meetings of top finance ministers and central bankers concluded on Thursday without any agreement on priorities after some countries — understood to include the US — took dissenting views on issues including climate finance and the introduction of trade tariffs.
A summary of the meetings did find general agreement from members that the independence of central banks was “crucial” to ensuring price stability.
Kganyago, who has been bank governor since 2014, said the new wave of economic protectionism triggered by Trump’s return to the White House had cast a shadow over global co-operation and risked a dangerous game of tit-for-tat.
“To the extent that any country decides to impose tariffs on others, it impacts on global trade,” the governor said, adding that retaliation — potentially via measures other than tariffs — risked undermining the post-pandemic global recovery.
This scenario began to play out this week, after Trump threatened to impose 25 per cent duties on goods from the EU, saying the bloc had been created “to screw the United States”.
French finance minister Eric Lombard responded: “It is clear that if the Americans maintain the tariff hikes, as President Trump announced, the EU will do the same, [as] we too must protect our interests.”
Kganyago said monetary institutions that were complacent about the “populist charge” were the most vulnerable.
“Central banks are not immune,” he said. “In any democracy, where there’s contestation about the role of institutions, central banks must understand there will be contestations about their role.”
“Our best defences are honesty with the public and excellence in pursuing our mandates.”
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