S&P warns South Africa over meddling with central bank independence

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UPDATE 1-S&P warns South Africa over meddling with central bank independence

* S&P warns of downgrade if South Africa c.bank independence

 (Adds detail, background)
    By Marc JonesLONDON, June 20 (Reuters) - Credit rating firm S&P Global
warned South Africa on Tuesday that its rating could be cut
deeper into junk territory if the government meddles with the
"critical" independence of the country's central bank.
    A row over the South African Reserve Bank has escalated this
week after the head of the country's constitutionally-mandated
anti-graft watchdog called for the bank to focus on growth more
than maintaining currency and price stability. [nL8N1JH0JX]
    "We would consider it critical that the operational
independence of the reserve bank remains untouched lest we would
see weakening policy flexibility in monetary affairs," S&P's top
sovereign analyst, Moritz Kraemer, told the Reuters Global
Markets Forum chatroom.
    "Depending on the severity of the changes (to the central
bank's independence), a rating action could indeed be one
    S&P stripped South Africa of its coveted investment grade
rating back in April after the sacking of internationally
respected finance minister Pravin Gordhan. [nL8N1HR5DG]
    It currently has a BB+ rating with a negative outlook on its
foreign currency debt, although it does still have an investment
grade BBB- on its domestic currency debt, which may have
prevented a larger scale sell-off of its bonds.
    New Finance Minister Malusi Gigaba has said the country is
committed to the fiscal consolidation plans laid out in his
predecessor Gordhan's 2017 budget.
    The government's debt is currently just below 50 percent of
gross domestic product, at around 2.2 trillion rand ($168.40
billion) while the cost of servicing that debt has been one of
the fastest growing budget expenditures in recent years.
    S&P has also warned that jostling for leadership positions
ahead of the ruling African National Congress party's conference
at the end of the year, was likely to distract the government
from implementing economic reforms. [nL8N1HR5DG]
    Unemployment is at a 14-year high, key sectors of the
economy are struggling as the country reels in recession. Rival
rating firm Fitch also warned this week that new rules on mine
ownership introduced last week could deter investment.
    "We consider the reserve bank as the pillar of institutional
strength which supports the South Africa sovereign rating at its
current level," Kraemer said on Tuesday.
    "Any weakening of the status and independence would in our
view risk weakening the monetary flexibility which remains a key
rating strength."
    ($1 = 13.0640 rand)

 (Reporting by Marc Jones; editing by Karin Strohecker/Jeremy
 ((marc.jones@thomsonreuters.com; +44)(0)(207 542 9033; Reuters
Messaging: marc.jones.thomsonreuters.com@reuters.net  Twitter


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