Independence of SA Reserve Bank reaffirmed at ANC indaba

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The ANC yesterday moved to reaffirm the independence of the SA Reserve Bank (Sarb) as the rand tumbled to seven-week lows after the party’s policy conference raised more questions on its independence and functions. The rand fell 2.1percent to R13.4968 against the greenback at 4pm before recovering somewhat to R13.4396 an hour later after Finance Minister Malusi Gigaba said he would institute review proceedings in the high court in a bid to have Public Protector Busisiwe Mkhwebane’s findings and remedial action on Absa Bank and Sarb set aside. Gigaba said Sarb’s role was a policy question and there was no intention to amend the Constitution in any manner. He argued that the proposed constitutional amendment was not necessary. “The Constitution does not contemplate the protection of the currency for its own sake, but specifically in the interest of balanced and sustainable economic growth,” Gigaba said. “These two objectives of the Reserve Bank are mutually supportive and reinforcing.” The local unit was R13.15 in early trade yesterday before news from the conference-held discussions on whether to nationalise the bank, which later deferred the final decision to the party’s elective conference in December.

ANC head of the economic transformation commission, Enoch Godongwana, earlier said the conference had resolved to keep the bank independent, but to investigate changing its ownership.

Godongwana said the independence of the bank remained sacrosanct.

SA Institute of Race Relations chief economist Ian Cruickshanks said it was not exceptional for a central bank to be owned by the government, but that the independence of its operations and policy was always paramount.

“The sudden spike in the rand was informed by the fear that those in power might redirect monetary policy and Treasury cash flows for their own benefit,” Cruickshanks said.

Last month Mkhwebane recommended that the mandate of the bank should be changed from protecting the currency and using interest rates to curb inflation to a more active role in the economy.

Sarb yesterday said it had noted the ANC policy conference outcomes and that changing its ownership would not affect its mandate. “The shareholding of the Sarb has no bearing on the policy or regulatory role that the Sarb plays,” the central bank said.

The Sarb spells out its mandate on its website: “The primary purpose of the bank is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. Together with other institutions, it also plays a pivotal role in ensuring financial stability.”

“The achievement of price stability is quantified by the setting of an inflation target by the government that serves as a yardstick against which price stability is measured.”

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The bank said it currently has more than 660 shareholders and its shares were traded on an Over-the-Counter Share Transfer Facility market from within.

Econometrix chief economist Azar Jammine said the decision to have the bank owned by the government meant very little. He said the difference was that the conference decision could be seen as an attempt to compromise its independence.

“What has hurt the rand more is the recent bailout given to South African Airways, because it feeds to concerns already raised by rating agencies that state guarantees to state owned enterprises posed fiscal slippage risk,” Jammine said.

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