Central bank’s victory decisive
Ruling not totally unexpected
THE RAND found brief respite on Monday against the major currencies after the high court in Pretoria declared the public protector’s remedial action into the mandate of the South African Reserve Bank invalid, thus providing a certain level of certainty regarding the central bank’s independence.
The local unit had weakened to R13.34 against the greenback before the court pronounced on its decision in the matter, and was bid at R13.29 in the wake of the judgment.
However, the momentum of the rand was highlighted by market jitters ahead of an expected economic opinion on South Africa from rating agency Moody’s late last night. Moody’s was expected to cut its growth forecast for the country for this year and next year.
The rating agency, which is regarded as the most conservative rating agency of the three major ones, said last week that nothing major had changed since the downgrade of South Africa’s sovereign credit rating in June and thus there was nothing to warrant a downgrade now.
The court victory by the central bank was not totally unexpected as Public Protector Busisiwe Mkhwebane decided not to oppose the matter in the face of concerted criticism that she had overreached her mandate when she asked for legislators to change the mandate of the Reserve Bank from that of protecting the rand in favour of a socio-economic mandate.
Welcomed Lesetja Kganyago, the governor of the Reserve Bank, told reporters on the sidelines of the symposium of the Governors of the Association of African Central Banks, that the central bank welcomed the judgment.
“We welcome the judgment and we will let the judgment speak for itself. The mandate of the Reserve Bank is spelt out in the constitution and that is what we had always argued for,” Kganyago said.
In an earlier affidavit deposed by Kganyago with the court, he had charged that the rand had depreciated by 2.05 percent from R12.79 against the greenback in the wake of Mkhwebane’s utterances on the bank’s mandate.
Kganyago further charged that R1.3 billion worth of South African bonds were sold by non-residents on the day, with the day’s net sales ranking among the biggest over the last three months and that banking shares suffered most as result of Mkhwebane’s recommendations.
In a scathing judgment, the court said it set aside the remedial action proposed by Mkhwebane as it was procedurally unfair and said it would do Mkhwebane well to reflect deeply on her conduct in this investigation and the criticism levelled at her.
“Given the far-reaching nature of the impugned remedial action and the reasonably foreseeable material impact it would have on the Reserve Bank and the stability of the financial sector, it was incumbent on the public protector to have given notice to the Reserve Bank of this intended action and to have called for comment on it.
“She risks the charge of hypocrisy and incompetence if she does not hold herself to an equal or higher standard than that to which she holds those subject to her writ,” read the judgment.
The focus will now shift to the second application launched by the Reserve Bank to challenge other aspects of the public protector’s report as the bank moves to reassert its independence.
Last week, the central bank launched a new affidavit in which it asked the court to also declare that Mkhwebane was wrong when she ordered the Special Investigative Unit (SIU) to recover the R1.12bn funds used for the Bankcorp bailout.
The public protector’s office had indicated that she would be opposing the Reserve Bank’s latest court action.
Earlier this month, the rand lost significant ground when Moody’s said that while the Reserve Bank’s decision last month to cut interest rates for the first time in five years would boost economic growth, it also saw the decision as a signal of growing political pressure on the bank.
Armand Greyling, a law and policy analyst at AfriBusiness, said the judgment had affirmed the central bank’s independence from whatever undue influences that may exist.
“The public protector has effectively been put in her place and this should serve as a warning to other public bodies who attempt to meddle in the affairs of independent institutions. We dare not find ourselves in a situation where a central bank can be commandeered and stripped of its independence and responsibilities to meet political agendas,” Greyling said.
Meanwhile, President Jacob Zuma, while addressing the symposium of the Governors of the Association of African Central Banks, said on Monday that monetary policy has an important role to play in the development of our economies and the continent in general.
“It is generally accepted that a stable macro-economic environment is essential for economic growth. Maintaining price and financial stability are two of the key characteristics in this regard,” Zuma said.