Nervous investors dump Rand, bonds as ANC seeks to nationalise SARB

by Robert Brand

(Bloomberg) – It’s a sign of how nervous investors are about South Africa.

The ruling African National Congress proposed on Wednesday that the Reserve Bank should be fully state-owned. Given most central banks worldwide are owned by their governments, the move will have no effect on monetary policy, according to Rashaad Tayob, a money manager at Abax Investments Ltd. in Cape Town.

But in South Africa, it’s enough to spur a selloff. The rand fell as much as 2.2 percent, before paring the drop to 1.9 percent by 4:42 p.m. in Johannesburg, the worst performance among major emerging-market currencies. Against the backdrop of a political debate about the bank’s mandate, traders were rattled.

South Africa’s graft ombudsman last month recommended that the central bank’s mandate should be changed to promoting economic growth to favor the poor, rather than targeting inflation. That set in motion a debate that continued to rage at the ANC’s policy conference this week at a time when economic arguments have become a proxy in a leadership battle pitting President Jacob Zuma against his deputy, Cyril Ramaphosa.

“The net effect is zero, but I think investors are on edge given that the mandate of the bank has been questioned and targeted in a very political way,” said Tayob. “It shows that the balance of policy is shifting away from the traditional framework.”

Zuma supporters are in favour of what they call “radical economic transformation,” including transferring more wealth into the hands of the country’s black majority. Ramaphosa is seen by some investors as more business-friendly.

Bonds Decline

Yields on benchmark government bonds due December 2026 climbed eight basis points to 8.86 percent, reversing an earlier drop. The yield is the highest after Turkey’s among emerging-market peers in the Europe, Middle East and Africa region.

Since its establishment in 1921, the Reserve Bank has always had private shareholders who vote to appoint seven of the central bank’s 10 non-executive directors. The board, which also includes the governor and three deputies as executive directors, is responsible for the governance of the central bank, while the Monetary Policy Committee directs policy. Private shareholders have no say on policy or the appointment of the governor.

The proposal was approved in a plenary session at the party’s policy conference in Johannesburg, said three people, who asked not to be identified because it hasn’t been made public. Decisions taken at the policy conference, which ends Wednesday, need to be ratified at the party’s national electoral conference in December.

The currency’s three-month implied volatility jumped 55 basis points to 16.33 percent, the highest among emerging-market peers. That suggests options traders expect wider price swings in coming months.