S. Africa Central Bank Says Ombudsman's Actions Risk EconomyBy and
Public Protector’s recommendations ‘ill-informed and reckless’
Remedial action is irrational, fundamentally alters SARB role
South Africa’s central bank filed court papers to reverse an instruction by the anti-graft ombudsman that its mandate of protecting the value of currency be changed, saying the “reckless” proposal is harming the economy.
Public Protector Busisiwe Mkhwebane in a report earlier this month instructed parliament to start a process to change the nation’s constitution to make the central bank focus on the “socioeconomic well-being of the citizens” rather than inflation. Her comments knocked the rand as the change was seen by investors as a threat to the independence of the Reserve Bank.
The report “has had a serious detrimental effect on the economy” from the moment it was released, Reserve Bank Governor Lesetja Kganyago said in a papers filed in the Pretoria High Court. “As long as it remains in place, it holds the risk of causing further rand depreciation, further ratings downgrades and significant capital outflows.”
The Public Protector’s investigation was into an apartheid-era bailout by the regulator of Bankorp, which Barclays Africa Group Ltd.’s Absa bought in 1992, and was “not concerned with the Reserve Bank’s constitutionally entrenched powers,” Kganyago said. Her remedial action goes beyond the ambit of the probe and also breaches the separation of powers because it “encroaches on the exclusive domain of parliament,” he said.
The findings ignored submissions from the central bank that all the money from the bailout had been repaid, while the probe itself was procedurally unfair because at no stage was the Reserve Bank informed that its mandate would be under consideration, Kganyago said, adding that the instruction by Mkhwebane is “ill-informed and reckless.”
“The remedial action is irrational because it is taken with the object of promoting socioeconomic development but removes one of the key tools the Reserve Bank uses to achieve this,” Kganyago said. “Low inflation helps maintain the value of the money in your pocket. This is good for all South Africans but especially the marginalized and the poor.”
A directive that the Reserve Bank should exercise its powers in consultation with parliament would undermine its independence, while the focus away from price stability would turn it into a “socioeconomic well-being organization,” the governor said. The order must be “stopped in its tracks” as it had already weakened the rand, caused bond outflows and knocked banking stocks, while S&P Global Ratings said the country’s ratings could be downgraded further, he said.
S&P and Fitch Ratings Ltd. cut the nation to junk in April after President Jacob Zuma removed Pravin Gordhan as finance minister.
Kganyago, 51, was appointed by Zuma for a five-year term from November 2014. He won’t resign in response to attempts to change the central bank’s focus, he said.
“We are steadfast that we will defend the independence of the South African Reserve Bank and that is why we decided to launch this court proceedings,” Kganyago said in an interview with Bloomberg Television on Wednesday. “Quitting my job would mean that I’m a coward and I’m running away, and I’m not about to do that.”
Public Protector spokeswoman Cleo Mosana asked for questions seeking comment to be sent by email and didn’t immediately respond.
— With assistance by Guy Johnson, and Arabile Gumede