South Africa adds central bank row to economic and political troubles


Reuters

UPDATE 5-South Africa adds central bank row to economic and political troubles


* Watchdog wants to axe cbank's mandate on currency, price
    * Cenbank says plans to mount challenge watchdog in court
    * Rand recovers after cenbank says to challenge watchdog
    * ANC's Mantashe criticises Public Protector's call
    * Finance Minister says need to protect SARB independence

 (Adds comments from Finance Minister)
    By Tiisetso Motsoeneng and Mfuneko Toyana
    JOHANNESBURG, June 20 (Reuters) - A major row in South
Africa over the independence of its central bank escalated on
Tuesday, with both sides trading barbs in a dispute over whether
the bank should be more concerned about citizens and less about
currency.
    The issue -- triggered by a public watchdog's recommendation
-- comes just as South Africa's economy has sunk into recession,
its credit rating downgraded and politics is gripped by
questions over President Jacob Zuma's stewardship.
    Zuma has been facing mounting calls to resign ahead of a
conference in December where his successor as party leader will
be chosen. His term as head of state runs until a national
election in 2019.
    Public Protector Busisiwe Mkhwebane, head of South Africa's
constitutionally-sanctioned anti-graft watchdog, called on
Monday for the central bank's mandate of maintaining currency
and price stability to be changed, saying the bank should act in
the interests of empowering ordinary citizens.
    Speaking on 702 Talk Radio on Tuesday, Mkhwebane said the
central bank's mandate was focused on a "few commercial
interests".
    The Reserve Bank said in a statement that Mkhwebane's office
had no business in making recommendations about how it is run.
    "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 in
a statement.
    Finance Minister Malusi Gigaba, who is currently in London,
told Reuters he was still studying the Public Protector's report
and would make a decision on whether to back the central bank in
seeking a court review of the recommendation.

    CALL FOR CAUTION
    But Gigaba also stressed that the independence of the
central bank must be protected at all times. [nL9N1CD01K]
    "We should be very cautious about making proposals that are
going to leave the economy -- and the institutions we have to
manage our economy -- weaker," he said.
    The Secretary General of South Africa's ruling African
National Congress (ANC) party Gwede Mantashe said that Mkhwebane
had over-reached her powers and undermined the central bank's
credibility.
    However, the country's largest trade union and ANC-ally
Cosatu backed Mkhwebane's position.
    South Africa's main opposition party, the Democratic
Alliance, said Mkhwebane's recommendation "goes beyond what she
is legally empowered to do" and was illegal.
    S&P Global Ratings said it was "critical" that the
operational independence of the central bank remains.
    South Africa's banking industry lobby group also backed the
central bank, urging the government to confirm the bank's
independence.
    Prolonged political turmoil has dealt several body blows to
Africa's most industrialised economy.
    Unemployment is at a 14-year high, key sectors of the
economy are struggling as the country reels in recession and
Fitch has warned that new rules on mine ownership introduced
last week could deter investment. [nL8N1JG5BR]
    The rand <ZAR=D3> weakened as much as 1.6 percent on Monday
after Mkhwebane's recommendations, but on early Tuesday it had
recovered some ground following the central bank's comments,
trading 0.45 percent weaker at 13.0584 per dollar.
    On Monday evening, the bank's governor Lesetja Kganyago
defended the mandate to keep inflation low and protect the value
of the currency, saying it was supportive of economic growth.
[nL8N1JG3PJ]
    Tito Mboweni, a former Reserve Bank governor warned against
meddling with the central bank's independence, which he noted
had been agreed as a "covenant" between bank and government.
    "It is unwise to try and change this at the slightest
political provocation. It is a very serious matter for our
beloved country," he said in a Facebook post.

    ECONOMIC WOES
    South Africa is on the brink of prolonged economic downturn
after data this month showed a second consecutive quarterly
contraction to growth, with elevated political uncertainty
sapping already weak business activity.
    The country's credit rating was recently downgraded by all
three major rating firms, with two of the top three agencies
slashing Pretoria's debt into junk territory, all citing the
risk of abrupt fiscal policy shifts following the sudden axing
of finance minister Pravin Gordhan in March.
    Gordhan, sacked by Zuma in what was seen as a political
move, was a favourite among international investors.
    Investors were already expressing concern about the central
bank row.
    "For a country grappling with political uncertainty and the
medium-term need to reduce corruption and strengthen
institutions, this is a worrisome development," Head of Emerging
Markets Strategy at Societe Generale Jason Daw said in a note.
    Dennis Dykes, chief economist at Nedbank, said: "The
recommendation is completely flawed and extremely bizarre."

 (Writing by James Macharia; additional reporting by Karin
Strohecker and Claire Milhench; Editing by Gareth Jones)
 ((tiisetso.motsoeneng@thomsonreuters.com; +27 11 775 3122;
Reuters Messaging:
tiisetso.motsoeneng.thomsonreuters.com@reuters.net))

Keywords: SAFRICA CENBANK/ (UPDATE 5, PIX)



This article appears in: Politics , Stocks , World Markets , Economy


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