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S&P warn of further downgrades if SARB mandate changes

By Jessica Anne Wood

Global ratings agency Standard & Poor’s (S&P) has warned that should the Public Protector’s call for a change to the South African Reserve Bank’s (SARB) mandate be fulfilled, South Africa could face another ratings downgrade.

On 20 June 2017, Public Protector Advocate Busisiwe Mkhwebane released a report looking at the apartheid-era bailout provided to Bankorp Limited. In the report, Mkhwebane advised that changes be made to the SARB mandate with the Constitution. This follows only a few weeks after the country faced a sovereign credit ratings downgrade by S&P, with Fitch and Moody’s also recently downgrading the country. At the time S&P stated: “The SARB is operationally independent, in our opinion, with transparent and credible policies.”

The independence of the SARB has been viewed as a positive factor by the ratings agencies. The proposal by the Public Protector to change the SARB’s mandate throws into question this independence going forward if changes are to be made.

On 20 June, Reuters news agency reported S&P’s warning that South Africa’s “rating could be cut deeper into junk territory if the government meddles with the "critical" independence of the country's central bank (SARB).”

Moritz Kraemer, S&P's top sovereign analyst, told the Reuters Global Markets Forum chatroom: “We would consider it critical that the operational independence of the reserve bank remains untouched lest we would see weakening policy flexibility in monetary affairs. Depending on the severity of the changes (to the central bank's independence), a rating action could indeed be one consequence.”

SARB takes the battle to court

Following the Public Protectors call for the mandate of SARB to change, SARB has argued that this proposal falls outside of the powers of the office of the Public Protector. The SARB has lodged an application at the Pretoria High Court calling for the remedial action proposed by the Public Protector to be put aside.

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