South Africa’s rand fell more than 1.5% on Monday after the Public Protector, an anti-graft agency, recommended constitutional changes to make the central bank promote economic growth rather than currency and price stability.
By 00:30 Tuesday morning, the rand was trading 1.44% weaker to the dollar at 12.99, having hit 13.0525 in response to the comments from Public Protector Busisiwe Mkhwebane.
Government bonds also weakened, with the yield for the benchmark instrument due in 2026 rising as much as 11 basis points to 8.595%.
Mkhwebane made the proposal in a statement to a Pretoria news conference where she delivered her findings on an apartheid-era bailout of Barclays Africa Group.
In her recommendations, Mkhwebane said the constitution should be changed to make promoting balanced and sustainable economic growth the primary objective of the South African Reserve Bank (SARB).
The central bank said that it was studying the Public Protector’s report and would announce its response to the findings and remedial actions.
But SARB Governor Lesetja Kganyago told a business gathering late on Monday, without making specific reference to Mkhwebane’s recommendations, that keeping inflation low and protecting the value of the currency was supportive of economic growth.
“The ratings agencies have been clear that the effectiveness of the central bank is one of the strongest pillars supporting this economy – a claim that speaks to both our price and financial stability mandates,” Kganyago said.
“We will continue to honour our constitutional mandate and the trust placed in us by the South African society.”
Specifically, Mkhwebane said the phrase “to protect the value of the currency” should be removed from the constitution. That phrase has been central to South African monetary policy since the end of white-minority rule in 1994.
Mkhwebane was delivering her findings against Barclays Africa, and it was unclear why deviated into monetary policy. Nomura emerging markets economist Peter Attard Montalto said the tangent was touching “Pandora’s Box”.
“This is quite unusual that a Public Protector has been so specific on changing the constitution or indeed be so radical on transformation,” he said.
Nevertheless, he said, any changes to the central bank’s mandate were unlikely to happen in the short to medium run given the legal resistance the SARB was likely to mount.
“I see the SARB leadership strongly and resolutely defending their independence and existing mandate including via court action if necessary,” he said.
Economists Nic Borain and Jeff Schultz at BNP Paribas South Africa said in a note that the Public Protector had placed the future of the central bank’s autonomy into question.
“We also think that it is possible that the public protector has overstepped her powers in instructing Parliament to change the constitution and, therefore, her report is likely to face judicial review,” Borain and Schultz said.
In her findings against Barclays, which trades under the name of Absa, Mkhwebane said the bank had unduly benefited from apartheid-era bailouts and must repay R1.125 billion ($87 million).
She also said the government and the Reserve Bank had failed in their role.
Mkhwebane said her investigation had found that the apartheid government breached the constitution by supplying Bankorp, which was acquired by Absa in 1992, with a series of bailouts from 1985 to 1995.
Absa denied any wrongdoing. It said it was studying Mkhwebane’s report and would consider its legal options.
At the same event, Mkhwebane said she will oppose a bid by President Jacob Zuma to have set aside a report on claims of influence-peddling by him and his government.