Dear Governor Lesetja Kganyago

SA needs your help.

You know what one thing would cement this first quarter of 2018 as probably the best, economically, in half a decade? A big interest rate cut on Wednesday. None of this cautious 25 basis points that the market is predicting, but a bold, confidence-boosting 50 basis points.

After the years of escalating gloom and despondency that characterised the Zuma administration – and the tax increases we all face as a result of that dysfunctional decade – a bigger than expected rate cut would be a great morale booster.

Nowhere in the SA Reserve Bank mandate does it say you must keep everyone happy all of the time. But with inflation at 4%, its lowest levels in years, growth just beginning to recover, the rand relatively stable, and consumer spending still muted, there may be no better time than now for a decent cut.

Economists will tell you that a 25 basis point cut will be prudent. Members of the Monetary Policy Committee (MPC) of the SA Reserve Bank are by nature cautious and conservative. And it is precisely that level of dignified stoicism that ensured the central bank maintained its integrity and independence despite numerous attempts to destabilise it and alter its mandate over the past two years.

While it’s not the SARB job to clean up the mess left by politicians, you do have it within your remit to maintain price stability to ensure that the tentative economic recovery witnessed since December gathers pace ahead some of the most significant tax changes in a generation.

Not only do we see the taxes and levies on a litre of fuel rise by 52c a litre from next Wednesday, we also get an increase in the VAT rate from 14% to 15% on 1 April. The one thing these two taxes have in common is that they will never go down. More than half the price of a litre of petrol is made up of levies and taxes and a regulated amount called the retail fuel margin designed to ensure, amongst other things, that oil companies keep petrol attendants on forecourts as a mechanism for job creation. In fact just the base cost of fuel before you add the complexities of oil prices and currencies amounts to more now than a whole litre of petrol cost at the start of the Zuma administration.

South Africa has arguably made greater economic progress in the first quarter of 2018 than in any other three-month period over the past five years. Business confidence, while negative, is returning. The decision by ratings agency Moody's to step back from a full-blown ratings downgrade on Friday and to change in outlook from negative to neutral is also a welcome confidence boost.

South Africa is most certainly not out of the quagmire, but it’s made extraordinary progress in a short period of time.

Of course, there are problems. 

Political agitation over land reform is raising the temperature internally as the ANC looks for a way through the critical issue of restitution to avoid catastrophic Zimbabwe-style land grabs while at the same time providing sufficient security to large scale agriculture to ensure food security.

There is no telling how close South Africa came to the brink in December when the ANC narrowly chose Cyril Ramaphosa over Nkosazana Dlamini Zuma – but it was close. It would be a shame to squander the opportunity that critical decision introduced.

Mission-critical financial ministries are in safer hands than before. While he might be allergic to the idea of privatisation of State Owned Enterprises, Pravin Gordhan has until the next election when he is expected to retire to restructure boards and to inject higher levels of integrity into them. Under Nhlanhla Nene, national treasury appears also to have been given another chance.

In the short two years since he was last minister of finance, Nene has noticed some pretty significant changes at the Treasury.

He told me this week how returning to the treasury was akin to arriving home after being divorced for a while and realising not all the children in the house are yours.

State capture was interrupted. Confidence in the recovery is simultaneously strong, but fragile too in parts.

A meaty rate cut would be a welcome boost.

Do it, governor. We're counting on you.

Yours sincerely,

Bruce Whitfield


Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster. He is a sought after public speaker on the political economy.

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