Despite new central bank Governor Gill Marcus being liked by the market, there is an increased likelihood of an even noisier public debate around inflation targeting as the unions jostle to gain influence over her, said an international economist on Monday.

"We still expect no change in policy but will need to see Marcus and others on the MPC more publicly argue for inflation targeting. Equally, even if she does show commitment to inflation targeting, the MPC under the direction of the Governor has significant room to stretch its mandate to concentrate on growth over inflation and become more dovish at certain points of the cycle," said economist from Nomura, Peter Attard Montalto.

Key opportunity

He also feels that Marcus missed a key opportunity to reassure markets in the press conference when asked if she would affirm her commitment to inflation targeting, saying she would work based on consultation.

"This unwillingness to express a commitment may well be partly because she does not want to upset the unions so early on and wishes to debate inflation targeting with them first. She will have to tread carefully to keep market sentiment onside. Her comments yesterday may have simply reflected an openness to debate on the part of the ANC, but she could have been less subtle as indeed Zuma was at the press conference, saying he had not consulted with the unions on the appointment and that there would be no change in current policies. Investors may be giving policymakers the benefit of the doubt for the moment, but this is not unconditional."

But Attard Montalto says his bank welcomes the appointment of Marcus.

"She has an excellent pedigree given her previous positions and experience which included steering the SARB through the rand crisis of 2001. She is also something of an 'internal' appointment by the SARB given her previous time there, meaning she can tap into and is part of its strong institutional memory. Although her prior close involvement with the ANC and the fact she is liked by those on the left raise some concerns, it should be remembered that many other people on the left have been appointed to key positions over the years (Tito Mboweni is the prime example here) and have shown an impressive sense of pragmatism and ability to keep investors onside despite their backgrounds," he says.

There are three more MPC meetings with current Governor Tito Mboweni in August, September and October.

Rates on hold?

"We expect rates on hold and would not be surprised if he tried to use the MPC statements to ensure some momentum and continuity of policy across the changeover. Given her previous time on the MPC, Marcus is seen as something of a dove. The MPC has recently moved out its forecast horizon to look at inflation prospects in 18 months' time or so; we will be watching closely to see if the new Governor shifts the implicit forecast horizon closer to the present. It is these practical questions of how she will steer the MPC that are of most interest now."

Attard Montalto says the rand has rallied this morning, likely due to the removal of the long-running uncertainty about succession at the SARB.

"In our view Zuma has appointed the right people to key posts such as this, and to the Finance Ministry with Pravin Gordhan, but must now stand behind them and support them through difficult times and with difficult decisions to be made. Overall we are cautiously optimistic that (as in so many other areas of policy) there will be a sense of pragmatism and no change in policy regarding inflation targeting," he concludes.

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