South Africa is bracing for the Battle of the Bank as uncertainty over the Reserve Bank’s future threatens the country’s economy.
After Monday’s shock recommendation by Public Protector Busisiwe Mkhwebane to change the constitutional mandate of the central bank, rating agencies, economists and even the ruling party warned yesterday of disastrous consequences.
She proposes changing the bank’s focus from implementing monetary policy and targeting inflation to focusing on the socio-economic wellbeing of citizens.
The Reserve Bank announced it would take the recommendation on legal review, while credit rating firm S&P Global said any move against the institution could cause South Africa’s rating to dive deeper into junk territory..
“What confuses me is why someone like the public protector should be interfering in economic matters,” said Azar Jammine, chief economist at Econometrix.
“That shows there are forces trying to compromise the independence of the SA Reserve Bank and that will be a sad day,” he said.
The Reserve Bank was the one economic institution still stable now that it appeared the Treasury had been captured, he said.
He said Mkhwebane’s recommendation could lead to rampant inflation, a downturn in poor people’s living standards and ultimately high food prices.
“That is the real danger of moving the way that [Mkhwebane] is recommending,” he said.
ANC spokesman Zizi Kodwa told The Times that Mkhwebane had overstepped the line.
“The constitution of the Republic does not provide for a Chapter 9 institution to call for the amendment of the constitution. It is not a remedial action to amend the constitution. The remedial action must respond to irregularity or unlawful conduct. We think, therefore, she has done what we call public protector overreach.
“We think it is unfortunate, regrettable and borders on unconstitutionality to have such a recommendation.”
The Reserve Bank said it would have the recommendation reviewed.
“The amendment would … strip the Reserve Bank of its key competency to protect the value of the currency and the well-understood role that central banks play in securing price stability. The remedial action proposed will have a negative impact on the independence of the Reserve Bank,” it said.
Banking Association of South Africa managing director Cas Coovadia said the government’s monetary policy of inflation-targeting was in line with other countries.
The SA Reserve Bank was mandated to implement this policy to ensure that inflation remains within 3%-6%.
“At the time when the country is in recession and we have been downgraded, we should be sending out positive messages that address the issues raised by the rating agencies not sending out messages that actually confirm their concerns,” Coovadia said.
Economist Dawie Roodt said the recommendation was bad news.
The reason why the South African economy is suffering at the moment is not monetary policy. Our economy is suffering because of other things. It has to do with policy uncertainty on the political side and the state of the [performance of] state-owned enterprises and things like that. It is not because of monetary policy.
“In fact, if we did not have the type of monetary policy we have, the South African economy will be worse off,” Roodt said.
Alan Mukoki, CEO of the SA Chamber of Commerce, was confident the Reserve Bank would deal appropriately with the recommendation.
“The public protector’s voice is not the last voice to speak on any matter. That is why we are a constitutional democracy and have a Constitutional Court which is the last of the institutions that have anything to say about any matter that must reach finality.
“I would panic if you have a situation where the Constitutional Court takes a decision to change the mandate of the Reserve Bank and the bank ends up with no independence. Then we would have a serious problem.”
Mkhwebane told EyeWitnessNews it was within the bank’s rights to take the matter on judicial review and that it was still up to the portfolio committee on Justice and Correctional Services to decide on the amendment.