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Court to rule on SA Reserve Bank mandate today

Aug 15 2017 08:00
Arabile Gumede, Bloomberg

Johannesburg - The North Gauteng High Court in Gauteng will rule on Tuesday whether the Public Protector should set aside an instruction that Parliament change the Constitution to amend the inflation-targeting mandate of the SA Reserve Bank (SARB).

The judgment will start at 10:00, SARB spokesperson Jabulani Sikhakhane said on Monday by text message.

Public Protector Busisiwe Mkhwebane instructed the National Assembly in a June 19 report to start a process to amend the Constitution to make the Reserve Bank focus on the “socioeconomic well-being of the citizens” rather than inflation. Her comments caused the rand to slide as the change was seen by investors as a threat to the lender’s independence.

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.

The timing of the Public Protector’s report “points to growing political pressure for less independent monetary policy,” Moody’s Investors Service lead sovereign analyst for South Africa, Zuzana Brixiova, said last month.

Creating concern

“If the judgment is in favour of the Reserve Bank that is a positive for South Africa, but I don’t think you can undo the damage” the report did, Gina Schoeman, an economist at Citigroup Global Markets, said by phone from Johannesburg.

“You don’t easily take a swipe at the South African Reserve Bank without creating quite a lot of concern and it certainly did.”

Mkhwebane can’t determine what comes before Parliament and failed to understand the central bank’s role, David Unterhalter, counsel for the South African Reserve Bank, told Judge John Raymond Murphy in the High Court on August 1.

The lender brought the application to set aside the instruction, which the protector didn’t oppose. The ruling party and lawmakers condemned her order.

She put the instruction in a report that followed her investigation into an apartheid-era bailout by the regulator of Bankorp, which Barclays Africa’s Absa bought in 1992.

She told the lender to repay R1.12bn. Absa and the National Treasury have also asked the court to review Mkhwebane’s report and the central bank has since brought a separate application to set aside the instruction that the money be recovered from Absa.

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