Scolded South African central bank switches to attack mode

Bloomberg

The South African Reserve Bank’s fight against its detractors escalated this week, and now even has President Jacob Zuma in its sights.
The central bank in court papers accused Public Protector Busisiwe Mkhwebane of bias and being part of a campaign to undermine its independence after documents showed the anti-graft ombudsman held a secret meeting with Zuma’s lawyers before proposing changes to its mandate. It’s another in a series of wrangles that could keep the institution in the public eye for something else than monetary policy this year.
Its mandate isn’t the only front on which the central bank has come under fire in the past three months. After Mkhwebane instructed lawmakers in June to change the constitution to make the bank focus on the “socioeconomic well-being of the citizens” rather than inflation, the ruling African National Congress proposed the next month that the bank, which has private shareholders, should be state-owned. If the proposal is adopted at the party’s elective conference in December, ANC lawmakers should ask parliament, where it holds 62 percent of the seats, to change the South African Reserve Bank Act.
“The Reserve Bank wants to bat from the front foot,” George Herman, chief investment officer at Citadel Investment Services in Cape Town, said by phone, referring to an attacking stance in cricket. “I think the bank understands that it is in the sights of those who are looking to take power away from it, and they are being proactive.”

‘Dismissive’ Approach
Mkhwebane said while she did meet with the Presidency before issuing her report, they didn’t discuss the central bank’s mandate. While she didn’t explain why the meeting wasn’t disclosed, her office plans to file an answering affidavit on Oct. 23.
The graft ombudsman’s recommendation followed a probe into CIEX consultancy’s report on the Reserve Bank’s bailout of Bankorp, which Barclays Africa Group Ltd’s Absa bought in 1992. She told Absa to repay 1.125 billion rand ($85 million). The High Court set aside Mkhwebane’s instruction on the Reserve Bank mandate, criticizing her “dismissive and procedurally unfair approach.”
The bank’s monetary policy committee will probably cut the benchmark lending rate to 6.5 percent on Sept. 21, according to the median estimate of 20 economists surveyed by Bloomberg. This would be the second consecutive 25 basis-point drop.
The central bank’s affidavit this week forms part of a separate application to scrap the order for Absa to pay back the money.
While proposing a state-owned central bank isn’t unusual, “the problem was timing,” Moody’s Investors Service lead analyst for South Africa, Zuzana Brixiova, told reporters in Johannesburg this week. “The two issues came around at the same time and in the run-up to elections of the ANC leadership and more broadly the elections in 2019.”

ANC Leader
Zuma’s term as leader of the ANC ends in December and the new party head who will be elected will likely succeed him as national president in 2019. Moody’s is the only major ratings company that still assesses South Africa’s foreign-currency debt as investment grade, after Fitch Ratings Ltd. and S&P Global Ratings downgraded the nation to junk in April after Zuma fired Pravin Gordhan as finance minister.
Governor Lesetja Kganyago and his three deputies were all appointed by Zuma for set terms and the Reserve Bank Act makes no provision for the removal of a governor. Deputy Governor Daniel Mminele’s second five-year term ends in June 2019 and he is the only one of the central bank’s four top officials for who Zuma could potentially name a replacement, depending on when the 2019 election is held. Kganyago’s term ends in November of that year.
“There is a worry about what happens from mid-2019 and onward when the deputy governors and governor are likely replaced under new ANC leadership,” Peter Attard Montalto, an analyst at Nomura International Plc. in London, said. “While the courts can stand up for the independence written in the law, ultimately in the long term, it will come down to politics.”