South Africa: A SARB constitutional change? – Deutsche Bank

In South Africa, the Public Protector made significant remedial actions on the Absa/Ciex saga including constitutional amendment of the SARB’s role, notes the analysis team at Deutsche Bank.

Key Quotes

“We’re less concerned about the ramifications for Absa, but clearly the latter could be an unwelcome, ill-timed curveball for South Africa. The very interference with the SARB’s mandate (with evident benefits of inflation targeting, free floating fx etc.) is among few factors that currently lend SA an investment grade status on its local currency bonds. Multiple downgrades are likely to be triggered, alongside the removal of the split rating that S&P attributes to sovereign credit (i.e. BBB- (LC) and BB+ (HC)). Such remedial actions, with possible disbanding of the inflation targeting framework, will have long-term negative consequences for the sovereign credit, economy, business and labour in our view. In our view, while unlikely to be successful, such a proposal is a terrible curve ball that neither confidence nor the economy can afford at this stage.”