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S&P warns of more downgrades over proposed changes to SARB mandate

Jun 20 2017 14:15
Matthew le Cordeur

Cape Town - S&P Global has warned that South Africa’s credit rating could be downgraded further if government takes up the recommendation to change the Constitutional mandate of the South African Reserve Bank (SARB).

"We would consider it critical that the operational independence of the Reserve Bank remains untouched lest we would see weakening policy flexibility in monetary affairs," S&P sovereign analyst Moritz Kraemer told Reuters on Tuesday.

"Depending on the severity of the changes (to SARB’s independence), a rating action could indeed be one consequence."

S&P downgraded South Africa’s foreign currency long-term debt credit rating to junk status following the removal of Pravin Gordhan as finance minister in March.

Its warning comes after Public Protector Busisiwe Mkhwebane called on Parliament to change the Constitution to improve the “socio-economic conditions of the citizens of the republic”, by removing SARB’s mandate to protect the value of the rand.

SARB is bringing urgent review proceedings to have the remedial action set aside, it announced on Tuesday. “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,” it said.

African National Congress (ANC) secretary general Gwede Mantashe told Eyewitness News on Tuesday that Mkhwebane overreached her power.

"On the powers of the Reserve Bank and the Constitution, I think that’s Public Protector overreach,” he said. “The Reserve Bank is right in reviewing it because that’s the only way you can challenge this, you can review properly.”

S&P joins Fitch and Moody's in raising SA concerns

“It indicates that the government is prioritising radical transformation even if this leads to weakening of the business climate and could reduce trend growth.”

Reduced business confidence in SA implies reduced investment, which would negatively affect growth in the country’s already-weak economy, and will ultimately make fiscal consolidation more challenging, Zuzana Brixiova, a Moody’s vice-president, senior analyst and lead sovereign analyst for SA, warned in a research note.

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