South Africa Court Scraps Bid to Alter Central Bank Role

JOHANNESBURG (Capital Markets in Africa) – South Africa’s High Court scrapped a bid by the nation’s anti-graft ombudsman to change the central bank’s inflation-targeting mandate.

The Public Protector’s instruction that lawmakers should start a process to change the constitution and amend the Reserve Bank’s mandate is set aside, Judge Cynthia Pretorius said in a ruling.

The judgment removes the risk of politicians interfering in the functioning of the central bank and may ease concerns about eroding the statutory independence of the institution, which is seen as an important strength by credit-rating companies and investors.

Public Protector Busisiwe Mkhwebane instructed the legislature in a June 19 report to start a process to amend the nation’s constitution to make the Reserve Bank focus on the “socioeconomic well-being of the citizens” rather than inflation.

The recommendation knocked the rand and bonds, coming soon after President Jacob Zuma removed Pravin Gordhan as finance minister in March. That decision had 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 Ltd. 

“A dismissive and procedurally unfair approach by the Public Protector to important matters placed before her by prominent role players in the affairs of the state will tarnish her reputation and damage the legitimacy of the office,” Pretorius said. “She would do well to reflect more deeply on her conduct of this investigation and the criticism of her by the governor of the Reserve Bank land the speaker of parliament.”

The rand reversed losses against the dollar and was 0.2 percent stronger at 13.3006 at 11:19 a.m. on Tuesday in Johannesburg.

The instruction was in report that followed her investigation into an apartheid-era bailout by the regulator of Bankorp, which Barclays Africa Group Ltd.’s Absa bought in 1992. She told the lender to repay 1.125 billion rand ($84 million). The central bank has brought a separate application to set aside the instruction that the money be recovered from Absa.

The Reserve Bank had argued that Mkhwebane showed “a lack of competency” as she can’t determine what comes before Parliament and failed to understand the central bank’s role. The Public Protector didn’t oppose the central bank’s application. The ruling party and lawmakers condemned her order.

“We didn’t need any precedent to be set on our mandate,” Governor Lesetja Kganyago told reporters at the central bank after the ruling. “The mandate of the Reserve Bank is spelled out in the constitution and that is what we had argued for.”