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Investors on high alert after Public Protector bombshell

Jun 20 2017 21:15
Carin Smith

Cape Town - Against a fresh wave of political and policy uncertainty which also triggered a heap of rating downgrades, the recent statements by Public Protector Busisiwe Mkhwebane will not be taken lightly by markets and investors.

This is the view expressed by Gina Schoeman, South Africa economist of global bank Citi, on Tuesday. She commented on a report Mkhwebane presented on Monday. Mkhwebane announced her findings after an investigation into SARB’s assistance to Bankorp - which Absa bought in 1992 - between 1985 and 1995. She wants Absa to repay R1.125bn, but the bank is adamant that it does not owe the SA government anything.

Mkhwebane also recommended that the Portfolio Committee on Justice and Correctional Services change the Constitution to read "the primary object of the SARB is to promote balanced and sustainable economic growth in the Republic, while ensuring that the socio-economic well-being of the citizens are protected".

According to Schoeman this was an unexpected move by Mkhwebane to announce both her intention to oppose President Jacob Zuma's review of the state capture report and her suggestion to re-word section 224 of the Constitution regarding the SARB's mandate to protect the currency.

READ: Markets inch higher as rand weakens on Public Protector recommendation   

"While the former, on its own, would have placed the PP [Public Protector] in a favourable light of independence - given the popular assumption that Mkhwebane is part of the Zuma camp - the bombshell comment about dabbling with the Constitution - and thus with the SARB's mandate - stole the show. The rand weakened in response," Schoeman commented on Tuesday.

She added, though, that to clear things up: the PP did not outrightly state that the SARB should not protect the currency, but rather, her suggested edit to the Constitution removes the explicit requirement that the SARB "protect the value of the currency".

"The underlying objective of the PP's suggestion is unclear, particularly as a near-impossible two-thirds majority vote in Parliament would be needed to action a change to the Constitution. However, public statements cannot be undone and it risks undue speculation‎ about political interference into the SARB's policies," cautioned Schoeman.

On Monday night SARB governor Lesetja Kganyago said the bank's fundamental, constitutional mandate is to protect the value of the rand in the interests of balanced and sustainable growth.

On this Schoeman commented that, while an interest rate cutting cycle is likely on the horizon, the Monetary Policy Committee (MPC) of the SARB would not want to cut rates prematurely against "such political noise".

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