Zuma’s New Central Bank Governor Gets Investor Thumbs-Up

By Robert Brand and Rene Vollgraaff  

Lesetja Kganyago’s appointment to succeed Gill Marcus as head of the South African central bank is lifting bond investors, who say they’re counting on him to maintain the focus on curbing consumer-price growth.
“If he’s going to be more hawkish than the current governor, bond investors are going to be happy,” Jonathan Myerson, who helps manage the equivalent of about $3.6 billion at Cadiz Asset Management (Pty) Ltd., said by phone from Cape Town yesterday. “It’s going to give security around inflation concerns, so it’s a good thing. Yields should benefit.”
Rates on rand government bonds fell by the most after Brazilian yields among 31 emerging-market nations monitored by Bloomberg yesterday after South African President Jacob Zuma named Kganyago, who turns 49 today, as the next governor. Monetary policy should
retain its emphasis on inflation, Kganyago said Sept. 30 in a speech, which Myerson described as “outstanding”.
The Reserve Bank raised the benchmark rate twice this year to fight accelerating prices, which have exceeded the 6 percent top end of policy makers’ target range for five straight months amid a weakening rand. While the increases have weighed on the slowest economic growth since the 2009 recession, traders are betting more are in store over the next six months.

Favored Candidates

Kganyago, who will take office on Nov. 9 and chair a policy meeting less than two weeks later, pledged to continue Marcus’ policy path and pursue price and financial stability. Currently the deputy governor overseeing banks and financial regulation, he was one of two favored candidates, along with Deputy Governor Daniel Mminele.
“It is a continuum that we have seen since Ms. Marcus arrived at the bank in 2009 and I do not have to reinvent anything, I just have to carry from where she had left,” Kganyago told reporters in the capital, Pretoria.
Yields on rand bonds due in December 2026 dropped two basis points to 8.25 percent by 12 p.m. in Johannesburg after falling nine basis points yesterday. Forward-rate agreements, used to speculate on interest rates, are pricing in 56 basis points of increases by March next year.
“It could be that we’re going to see a more hawkish MPC, and there could be more front-loading of rate hikes,” Rune Hejrskov, a senior portfolio manager at Jyske Invest, which oversees the equivalent of about $1.4 billion in emerging-market debt including South African bonds, said by phone from Silkeborg, Denmark. “That would be rand-positive” and support bonds, he said.

Falling Rand

The rand fell to its lowest level last week against the dollar since January after the trade deficit widened more than estimated in August, driving up the cost of imports including oil. The currency weakened 0.2 percent to 11.2371 per dollar after rallying 1.2 percent yesterday.
Investors will watch Kganyago’s statement on Nov. 20 after the policy meeting for reassurance that his links to the trade union movement and ruling African National Congress won’t erode the central bank’s independence, said Stanislava Pravdova, an emerging-market analyst at Danske Bank A/S.
Kganyago joined the Reserve Bank in 2011 after serving more than seven years as head of the National Treasury, where he worked closely with Finance Minister Nhlanhla Nene. He helped to steer South Africa’s budget to a surplus between 2006 and 2008 and managed the government’s borrowing.

Union Links

Educated at the University of London and London School of Economics, Kganyago spent time in his early career at the Congress of South African Trade Unions, the country’s largest labor federation, and in the ANC.
“We have a little bit of concern about Kganyago’s connection with the trade unions and the ANC, which raises concerns about political involvement in the SARB,” Pravdova said by phone from Copenhagen yesterday. “That makes us a bit uncomfortable.”
Kganyago said at the announcement he would serve “without fear, favor or prejudice.”
Marcus will leave the bank after a single term, during which time she kept interest rates near a three-decade low to support economic growth. Kganyago takes office with inflation at 6.4 percent and the economy forecast to grow at 1.5 percent this year, which would be the slowest pace since 2009.
“He is coming in during an upward interest rate cycle,” Annabel Bishop, chief economist at Investec Ltd., said by phone from Johannesburg. “I expect him to be measured in his approach to monetary policy and steer a steady ship as the head of monetary policy in South Africa to ensure increases are slow and well-balanced.”