The SA Reserve Bank (SARB) had harsh words following the Public Protector's remedial action calling for a change in the bank's mandate. Get all the news, views and analysis.
SARB seeks urgent court review to set aside Public Protector’s ‘unlawful’ action
The SARB said Public Protector Busisiwe Mkhwebane’s remedial action seeking Parliament to change the Constitution regarding the bank's mandate to protect the value of the rand “falls outside her powers and is unlawful”.
“The Reserve Bank has been advised to bring urgent review proceedings to have the remedial action set aside,” the SARB said in a statement on Tuesday. “The Reserve Bank has resolved to do so.
"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.”
Changing the Reserve Bank’s mandate to support growth is not a viable solution and it should be nationalised instead, said the South African Federation of Trade Unions (Saftu), reports Lameez Omarjee.
Zwelinzima Vavi’s new federation welcomed the Public Protector’s investigation into companies which “unduly benefited” during the apartheid era, but said this should not divert attention from urgent allegations around state capture.
Saftu acknowledged that Mkhwebane’s proposal for the SARB to promote “balanced and sustainable economic growth” while ensuring the protection of citizens' socio-economic wellbeing would improve matters. However, the federation called for the nationalisation of the bank, and for it to become a public service rather than a profit-making company.
Yet another controversial statement by a senior public official has again hurt investor confidence and this was reflected in price movements on the JSE on Tuesday.
All major indices were down by mid-morning in reaction to the war of words between Public Protector Busisiwe Mkhwebane and the South African Reserve Bank.
The rand, which dropped sharply on Monday in response to the statements, recovered on Tuesday, but share prices fell over a wide front as it became clear that investor confidence has taken a knock.
The rand dropped nearly 2% on Monday to a low of R13.0525, its weakest since June 1, but traded at R12.99 by mid-morning on Tuesday due to strong demand for high-yielding South African bonds. However, the softer rand did not support the prices of dual-listed shares as it normally does.
The latest controversy is the newest in a series of confidence-sapping news, including the controversial Mining Charter announced last week, and news that the South African economy is now in a technical recession with business confidence at its lowest in years.
The independence of the SARB is one of the strengths of the country’s financial system, former finance minister Nhlanhla Nene told Fin24's Adiel Ismail.
Although Nene made it clear that he was not sure of the context in which the Public Protector recommended the change, he suggested a thorough reading of the Constitution on the role of the Reserve Bank.
“It is very clear. It does not preclude the bank addressing the issue of growth, but it is in the context of price stability,” said Nene. “It is not just about inflation targeting per se, but it is price stability."
Nene explained that the SARB doesn’t just forecast inflation without taking into account issues such as growth and employment on a sustainable basis.
When asked if the SARB is doing a good job, Nene said: “It is actually one of the strengths.”
Why it’s not for Public Protector to make economic policy
Constitutional Law expert Pierre de Vos of the University of Cape Town told Fin24 that the Public Protector can’t order Parliament to change legislation - and this would include the Constitution.
Economist Mike Schüssler told Fin24 that the big question should be what the role of the Public Protector is. He emphasised that the Public Protector is certainly not an economic policy-making institution or a body writing the Constitution.
"The primary objective of the SARB is to promote balanced and sustainable economic growth in SA, while ensuring that the socio-economic well-being of the citizens is protected," said Schüssler.
“The SARB, in pursuit of its primary objective, must perform its functions independently and without fear, favour or prejudice, while ensuring that there must be regular consultation between the bank and Parliament to achieve meaningful socio-economic transformation.”
Schüssler said the rand would fall and interest rates on the long bonds rise if the markets or investors or even SA pension funds see another person who "meddles in economic policy".Fin24's top stories trending on Twitter: Fin24’s top stories