Kganyago and the SARB: The good, the bad, the worrying

Reserve Bank Governor Lesetja Kganyago has been reaapointed to the role. File photo Simphiwe Mbokazi/ Independent Newspapers

Reserve Bank Governor Lesetja Kganyago has been reaapointed to the role. File photo Simphiwe Mbokazi/ Independent Newspapers

Published Mar 18, 2024


Lesetja Kganyago is to be congratulated on his reappointment to the post of South African Reserve Bank (SARB) Governor – a vital role in protecting the rand and macroeconomy.

International markets and economists alike trust his independent mandate and guidance of monetary policy, which is to his credit, and it is good news for SA Inc to have a respected central bank leader at the helm who is not afraid to make unpopular interest rate decisions.

Furthermore, he is passionate about monetary policy, cares greatly about the SARB and monetary policy, and it is easy to see.

It is hard to be the bearer of bad news, and Kganyago, despite popularist pressure, has plotted a prudent trajectory as regards repo rate decisions in the face of high inflation – a factor that must be giving central bank governors globally sleepless nights.

High inflation hits people in the pocket, exacerbating poverty on the ground, making everything cost more.

If central bankers don’t bring rampant inflation down, its game over and everyone suffers. Kganyago has done a sterling job in navigating South Africa through these very dangerous waters that also have the US Federal Reserve adopting a very cautious stance on cutting rates too soon in the face of this phenomenon.

This as Annabel Bishop, the chief economist at Investec, in a note on Friday said the expectation was that the Monetary Policy Committee (MPC), when it makes its rate decision on March 27th, will put the repo rate on ice again.

She said: “South Africa’s Central Bank has been particularly strong on communicating its inflation concerns and has said that it wishes CPI (consumer price index) inflation to both reach 4.5% y/y (year on year), and sustainably remain around this midpoint of the target, before cutting rates.

"We continue to believe that the South African Reserve Bank will not cut its interest rate either this month or at its May MPC meeting, with July likely the first opportunity to do so.“

However, while the SARB is a sound, respected institution producing excellent work, no South African institution is above criticism, or above tightening up its house.

Kganyago, the SARB and Twin Peaks system

It was during Kganyago’s tenure, and again to his credit, that a forward thinking financial regulatory model was introduced – the Twin Peaks for greater financial stability.

Twin Peak was also introduced in the knowledge that the financial services stem is not immune to failed risk management protocol, such as the failures of African Bank and VBS Mutual Bank, for example.

This new regulator model has due regard for financial systems and financial consumers.

Unpacking the objective of Twin Peaks, Advocate Dexter L-J Ryneveldt (, says South Africa is the only developing country with such a regulatory model. Only four developed countries have it: Belgium, UK, Australia and the Netherlands.

Explaining Twin Peaks

As Kganyago explained, the SARB, which incorporates the Prudential Authority (PA), “has ultimate responsibility for financial stability. At the same time, the Financial Sector Conduct Authority (FSCA) is the apex authority for market conduct. There is a clear separation”.

He said in the speech: “Our Twin Peaks model has yet to fully mature. For instance, pension funds and collective investment schemes are expected to move to the PA only in April 2026. It is nonetheless a comparatively robust model, especially for a highly-concentrated financial sector with a small number of large players, as well as for the continuous development of financial technology.”

With Twin Peaks, the SARB no longer acts in isolation but relies on other authorities such as the National Treasury, the Financial Intelligence Centre , the National Credit Regulator and, of course, the FSCA. Cooperation between these institutions is also institutionalised through the Financial Sector Oversight Committee and the Financial Sector Contingency Forum.

Rynerveld explains that the South African financial authorities have to work in tandem, in collaboration and in coordination with the Twin Peaks – a flow of information, so at the end of the day they can take the appropriate steps in the event there is a risk to South Africa’s financial stability.

Spirit of cooperation

However, in Kganyago’s keynote address to the Financial Sector Conduct Authority Industry last week, I was gobsmacked as to how he appeared to undermine the spirit of co-operation of the Twin Peaks with regards to how he spoke about the Competition Commission's rand manipulation probe, which was also at odd’s with the SARB mandate of protecting the rand.

The Competition Commission’s rand manipulation case probed 28 banks – both local and international – in rigging trades involving the rand/dollar pair.

The South African Reserve Bank in Durban. Picture: Bongani Mbatha / Independent Newsapapers

The commission’s eight-year-long case was against all but four banks mentioned in the original investigation. The case was recently dismissed by the Competition Appeal Court (CAC) on the grounds of a lack of evidence, a lack of jurisdiction and overreach.

Kganyago said in his speech: “Unfortunately, we cannot say the public image of the financial sector is everything it should be. It was remarkable, with the allegations last year about banks manipulating the exchange rate of the rand, how ready people were to believe that there was in fact a giant conspiracy to rig the rand, and that this had seriously weakened the exchange rate, pushed up inflation and raised interest rates.

“Economists and market specialists understood that even if there had been market manipulation by some traders, the macro effects of the exchange rate being a few cents weaker or stronger for an hour or so would have been trivial. The impact on inflation and rates would have been zero. We also saw the Competition Appeal Court rule in January that there was no evidence of a general conspiracy. But this was not the conversation taking place in the public domain. Most people could tell that traders were behaving unethically, plotting in chat rooms, and this misconduct was so obviously wrong, it eclipsed further analysis.

“What I learnt from this is that public trust in the financial system is not as deep as it needs to be. I worry about our ability to have well-informed policy conversations, in potentially more stressful circumstances, if bad analysis can get this kind of public reaction,“ Kganyago said.

However, I found the way he threw the Competition Commission under the bus alarming. Media has asked the SARB to comment on the rand manipulation charges repeatedly and Kganyago has directed the country to knock on the competition body’s door for answers.

They found evidence that indeed some traders and banks had manipulated the rand, and some banks owned up and settled.

Standard Chartered admitted liability to the manipulation of the USD/ZAR currency pair, and agreed to pay an administrative penalty of R42.7m.

And while it has been widely acknowledged and backed up by the CAC ruling that the Competition Commission went too far in the rand manipulation ramifications to the economy, it is irrefutable that instances of rand manipulation took place by traders working for banks.

I would love to see the Federal Reserve saying a few dollars lost here and there by international traders was of no consequence to the larger picture and that the macro effects of the exchange rate being a few US cents “weaker or stronger for an hour or so would have been trivia”.

No, the Federal Reserve would come down like a ton of bricks and make sure they sent a loud message that no trader on the international stage would come near their currency or face the full might of the wrath of the United States of America. It is a serious offence to mess with a sovereign country’s forex.

Even from my junior intern days as a journalist, we were told to be careful in the use of photos of the rand, how as a tender the rand is sacrosanct and to protect it at all costs.

In this instance, a few individuals were found to have manipulated the rand for the purpose of profit maximisation by a select few companies. Profit maximisation means that someone, somewhere is making a loss – the wider community.

However, in this instance, South Africa’s broader macroeconomic and financial stability was not undermined.

What Kgangyago should rather have said in his speech was: “We are aware that our colleagues in the Competition Commission are tirelessly working on allegations of rand manipulation, the outcome of which will be dependent on the Constitutional Court hearing and to which they will issue a statement. For now the CAC’s court has ruled against us as State.”

The CAC case found that South Africa lacked jurisdiction over international banks, hence the Competition Commission has gone to the Constitutional Court to get answers to clarify its regulatory ambit.

But to have jurisdiction is one thing, to manipulate a currency is another. It does not absolve a bank from fiddling with the rand trade.

Thus, SARB and Kganyago, that sit under the Treasury and the Department of Trade Industry and Competition, should have been more respectful of the process that the Competition Commission is doing, and the SARB itself is part of that process, in a team of institutions that is working with the Competition Commission, thus undermining the Reserve Bank.

Questions around SARB and Steinhoff:

Last week, an article was published in the Daily Maverick, “Steinhoff: Reserve Bank manager signed off on billions in alleged unlawful cross-border transactions (Part One)

It reports, “Startling details contained in a dusty docket registered to the Hawks’ serious commercial crime unit shine a light on some alleged backroom schmoozing”, apparently aimed at paving the way for the questionable facilitation of billions of Steinhoff rands out of South Africa — with SARB approval.

“Historically, it was clear SARB had serious suspicions that Steinhoff may have contravened a list of exchange control legislation...

"SARB’S acutely embarrassing dilemma of divisional head at SARB’s Financial Surveillance Department, Raymond Paola, had been kept airtight for nearly three years. Neither formal nor informal questions posed nor a PAIA application could move SARB representatives to pull back the blanket from the Paola case,“ it was reported.

In the wake of the article, the deafening blanket of silence from the SARB is a red flag. Why hasn’t the SARB called a press briefing to confirm or deny these allegations?

Steinhoff on a corporate level is South Africa’s corporate crucible, and if one of the SARB’s traders was involved, it begs the question as to has South Africa’s central bank subsequently tightened up regulation?

I have sent the SARB media liaison some questions.

Among questions SARB needs to answer are:

1. Paola was a senior manager, where are his executives in this Steinhoff saga?

2. It appears that every bit of the 16 exchange control applications made by Steinhoff ended up with Paola the last decision maker at SARB. Does this demonstrate that controls at SARB are inadequate, or there is something more to the Paola story that is revealed?

3. How did SARB find it plausible to allow Paola to resign before exhausting its disciplinary process or even allow him to go before setting the police on him until they were comfortable all was investigated?

4. What is the divisional structure of the Financial Surveillance Department. Can SARB explain it? Has it changed since Paola?

5. When Paola was suspended, who was put in charge, and were there any Steinhoff transactions during the period of his suspension? And what were the signing powers during this period?

6.Were more senior people other than Paola aware of the transactions? And who could they be? For how long would they have known about this?

On Monday the SARB declined to answer the questions or say if it would hold a press conference.

SARB said, “All matters related to corruption or of a criminal nature were referred to the relevant law enforcement authorities in 2022, and the matter now resides with them.”

Philippa Larkin is the Executive Editor of Business Report.