Rand weakens further as S&P warns over central bank independence
The rand continued to lose ground against the dollar in afternoon trade on Tuesday as the market takes a dim view of comments made by the Public Protector who wants the Constitution changed to shift focus onto “economic transformation” at the cost of currency security.
By 14h40, the rand gave away almost a percent against the dollar, having lost 1.5% in trade on Monday.
- Dollar/Rand: -0.89% to R13.09
- Pound/Rand: -0.04% to R16.50
- Euro/Rand: -0.65% to R14.57
The South African Reserve Bank said on Tuesday that it will bring urgent review proceedings to have Busisiwe Mkhwebane ‘s order to change the bank’s mandate in the Constitution be set aside.
The bank said in a statement that it has consulted with its legal team and has been advised that the action prescribed by the Public Protector falls outside her powers and is unlawful.
Credit rating firm S&P Global meanwhile warned that its rating could be cut further if government interfered with the independence of the central bank.
“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,” S&P’s top sovereign analyst, Moritz Kraemer, told the Reuters Global Markets Forum chatroom.
“Depending on the severity of the changes, a rating action could indeed be one consequence.”
S&P currently has a BB+ rating with a negative outlook for South Africa, having downgraded the country’s investment grade in April following the sacking of then finance minister, Pravin Gordhan.
The central bank also said on Tuesday that South Africa’s current account deficit widened to 2.1% of GDP in the first quarter of this year from a deficit of 1.7% in the previous quarter.
Economists surveyed by Reuters had expected a 2.3% deficit for the quarter.
Read: Public Protector’s call to change the Constitution is unlawful: SARB
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