Reserve Bank heads to court to protect its independence
The Reserve Bank will on Tuesday ask the court to reverse an instruction from the public protector to change its mandate, as it seeks to protect its independence.
The High Court in Pretoria is due to hear the central bank’s application to set aside Public Protector Busisiwe Mkhwebane’s June 19 instruction that lawmakers must change the constitution to make it focus on the “socio-economic well-being of citizens” instead of inflation.
This roiled markets, with the rand being the most volatile among major and emerging-market currencies this year, was condemned by the ruling party and parliament.
The independence of the central bank is cited by rating companies as a key strength, and any move to erode that could lead to further downgrades, particularly after President Jacob Zuma removed Pravin Gordhan as finance minister in March. The move raised concern that National Treasury decisions would be become more political, and sparked cuts to junk status by S& P Global Ratings and Fitch Ratings Ltd.
A court judgment will bring certainty and settle the matter for investors, said Azar Jammine, chief economist at Econometrix in Johannesburg.
“The decision won’t create too much of a stir if it goes the way of the Reserve Bank,” Jammine said by phone. “The real issue comes if the decision is in favor of the Public Protector, which may cause a little bit of panic with fears from ratings agencies as well.’’
While Mkhwebane has said she won’t oppose the application, her instruction remains in place until it’s reversed by a court.
“Simply by not opposing the matter she is now accepting that she did not have the authority or jurisdiction to do what she did,” Lawson Naidoo, the executive secretary of the Council for the Advancement of the South African Constitution, said.
“Given the far-reaching consequences of the original findings of the Public Protector, it is very prudent to have it set aside properly so that there can be no ambiguity about the matter.”
The Reserve Bank’s mandate is to target inflation at 3% to 6%. The Monetary Policy Committee cut the benchmark repurchase rate on July 20 for the first time in five years as its inflation outlook improved and it halved its economic growth forecast for 2017 to 0.5%.
Governor Lesetja Kganyago and his three deputies will be in parliament, briefing lawmakers about the nation’s economic outlook, the lender’s mandate and Mkhwebane’s report at the same time as the court application.
The timing of the Public Protector’s report “points to growing political pressure for less independent monetary policy, a key pillar in our assessment of South Africa’s gradually deteriorating institutional strength,” Moody’s Investors Service lead sovereign analyst for South Africa, Zuzana Brixiova, said in research report on Monday. “It also sends another unclear signal about the policy direction.”
The rand weakened 0.2% to 13.2142 per dollar by 9:23 a.m. on Tuesday in Johannesburg.