South Africa’s High Court will rule on Tuesday whether the nation’s anti-graft ombudsman should set aside an instruction that lawmakers change the constitution to amend the central bank’s inflation-targeting mandate.
The judgment will start at 10am in the capital, Pretoria, Reserve Bank spokesman Jabulani Sikhakhane said Monday by text message.
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. 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 firings 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.
“If the judgment is in favor 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.”
The rand weakened 0.1% to 13.3377 per dollar at 8am in Johannesburg after gaining 1.1% on Monday. The yield on benchmark government bonds due December 2026 was little changed at 8.61%.
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 Aug. 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 Group’s Absa bought in 1992. She told the lender to repay R1.125 billion ($84 million). 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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