South Africa Central Bank to Fight `Unlawful’ Mandate Proposal

JOHANNESBURG (Capital Markets in Africa) – South Africa’s central bank accused the graft ombudsman of overreaching her powers and promised to fight a proposal to change the institution’s primary objective of protecting the value of the currency.

“The Reserve Bank has consulted its legal team and has been advised that the remedial action prescribed by the Public Protector falls outside her powers and is unlawful,” the Pretoria-based central bank said in a statement on its website.

Public Protector Busisiwe Mkhwebane recommended in a report on Monday that parliament 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 central bank’s independence is cited as a key institutional strength by credit-rating companies and investors. Altering the mandate may add to policy uncertainty after a cabinet reshuffle in March and changes to other regulations, including the Mining Charter. The central bank takes economic growth and employment factors into account in targeting inflation at 3 percent to 6 percent.

“The Reserve Bank has been advised to bring urgent review proceedings to have the remedial action set aside,” it said, adding the move would strip it of the central bank’s key function. “The Reserve Bank has resolved to do so.”

Mkhwebane’s suggestions were part of recommendations following an investigation into a Reserve Bank bailout for Bankorp, a unit of Barclays Africa, almost three decades ago. The rand weakened 1.5 percent against the dollar on Monday, while the yield on the benchmark rand bond due in 2026 climbed 6 basis points to 8.54 percent.

Radical Transformation
The report comes at a time when the ruling African National Congress is preparing for a leadership battle and as President Jacob Zuma has vowed “radical economic transformation” to accelerate spreading wealth to the black majority in the country. He has also called for the constitution to be changed to allow for land to be taken without payment. The ANC will debate policy direction at a conference starting June 30.

Mkhwebane also proposes that the constitution requires “regular consultation between the bank and parliament to achieve meaningful socioeconomic transformation.” The law currently states the central bank must consult with the finance minister. She told Talk Radio 702 on Tuesday that the current central bank mandate served only “few commercial interests” and that her role is to ensure “social justice.” It’s within her powers to recommend that parliament changes the central bank’s mandate, Mkhwebane said.

“The public protector can’t order parliament to change legislation, including the constitution,” Pierre de Vos, a law professor at the University of Cape Town, said by phone. Any decision to change the central bank’s mandate would “depend on the politicians,” he said.

A two-thirds majority of lawmakers is needed to change the constitution.

Argument Misplaced
The National Treasury has noted the report and isn’t in a position to comment yet as it hasn’t received it from the Public Protector’s office, it said in a text message on Tuesday.

The argument that protecting the buying power of the rand is “anti-development” is misplaced, according to Reserve Bank Governor Lesetja Kganyago.

“Keeping inflation low, protecting the value of the currency, is supportive of growth,” he said in a speech late Monday in Johannesburg.