CAPE TOWN- Reserve bank has a legal duty to fight inflation and keep the currency stable, its governor said on Tuesday, restating his opposition to proposals that would focus the mandate more narrowly on economic growth.
Lesetja Kganyago also told a parliamentary committee that a separate proposal to nationalise the South African Reserve Bank (SARB) would not affect its mandate, as it would continue to derive its authority from the Constitution.
He warned, however, that political turmoil and regulatory uncertainty were harming investor sentiment towards South Africa, the continent’s most industrialised economy.
Public Protector Busisiwe Mkhwebane, whose job is to ensure proper conduct in public office, sparked a political row and a big sell-off in the rand currency when she proposed in June that the central bank’s monetary policy target be changed.
Kganyago has filed a court challenge to quash the recommendation, arguing that Mkhwebane went beyond the scope of her own mandate and describing the proposal as reckless.
“Suffice to say, we felt duty-bound by the constitution that when we felt that we were under attack, that we’ve got to stand up and defend this important institution of our democracy,” he said on Tuesday of Mkhwebane’s proposal.
Mkhwebane said last month that she would not defend her recommendation in court and she was not represented at a hearing for the case that started in Johannesburg on Tuesday.
A lawyer for the central bank, David Unterhalter, told the court the SARB acknowledged that Mkhwebane had conceded on the issue but said the potential consequences of the recommendation meant a court order was needed to reverse it.
“It will be an affirmation that the bank’s constitutional mandate remains intact,” Unterhalter said. The court expects to issue a ruling by August 18.
Kganyago told Tuesday’s briefing for parliament’s Standing Committee on Finance on the economy and the central bank, including its 2016/2017 Annual Report, that nationalising the SARB would not affect its mandate, which is laid down in law.
“The SARB’s constitutional mandate is to protect the value of the currency in the interest of balanced and sustainable economic growth,” he said.
The ruling African National Congress proposed at its conference last month that the central bank be nationalised, raising further concerns about the SARB’s independence following Mkhwebane’s proposal.
The two proposals centring on the central bank have rattled foreign investors already concerned about political stability. President Jacob Zuma faces a no-confidence motion in parliament next Tuesday amid persistent corruption allegations, though he denies any wrongdoing.
“The uncertainty is impacting on the confidence of investors. Now it is no longer just domestic but foreign investors,” Kganyago said.
South Africa’s economy slipped into recession in the first quarter and unemployment is close to 28 percent, although Kganyago said on Friday he expected a return to growth in Q2.