Reserve Bank governor Lesetja Kganyago has weighed in on the Competition Commission’s eight-year case against 28 banks for alleged foreign exchange market collusion, saying the Bank conducted its own investigation at the time but the commission is the “competent authority” on allegations of market abuse and the process should take its course.
The Bank launched its investigation in response to reports of global forex market abuses in 2014, even though there was no evidence of any misconduct by banks trading the rand. Its report, which was published on its website, recommended that a code of conduct be developed for the forex market, and the Bank also pledged its commitment to the global code of conduct that many central banks signed up to at the time.
Kganyago was speaking after the Bank’s monetary policy committee decided unanimously to hold interest rates on slightly lower inflation forecasts for 2023 and 2024.
This is the third consecutive meeting to keep the benchmark repo rate on hold at 8.25%.
Kganyago said that at this level policy is restrictive, consistent with the inflation outlook and elevated inflation expectations. He emphasised that there are serious upside risks to inflation and that the Bank stands ready to deploy its tools if these materialise. But he also noted that at an expected 5.8% average for this year, inflation is looking much better than forecast at the start of 2023.
His comments on the forex case, in which the commission alleges the banks colluded on the rand/dollar exchange rate in the New York market, comes after a week of hearings at the Competition Appeal Court. The banks have charged that the commission has no evidence of the “single overarching conspiracy” it alleges.
Settlement
Standard Chartered Bank, which was one of a handful of international banks implicated by the US department of justice in 2015, unexpectedly reached a R42m settlement with the commission during the hearings, though lawyers say the UK-based bank offered the commission the same settlement more than four years ago.
The justice department case prompted the commission to launch its own case in 2015, in which it included a host of local and foreign banks, several of which have no presence in SA and some of which do not trade foreign exchange.
In the case of several of the banks, including domestic players such as Standard Bank, Nedbank and FirstRand, there is no evidence they were ever in the online New York chatrooms where the conspiracy allegedly took place.
The commission has acknowledged this but wants to take the case to trial.
Lawyers believe it is possible that the Competition Appeal Court — which has said it will rule within three to four months on the legal challenges — could dismiss the cases against at least some of the 28 banks.
Minister in the presidency Khumbudzo Ntshavheni on Monday prompted angry responses from business after she claimed — in response to a question about the Standard Chartered settlement — that the private sector was manipulating the rand to “collapse the economy” and has no interest in SA’s economic development.
Thursday’s interest rate decision had been widely expected by the market. Though official figures this week showed inflation increased for the third month in a row, to a higher-than-expected 5.9%, Kganyago emphasised the committee does not respond to monthly figures but to the inflation trajectory over the policy horizon. The uptick in inflation is unwelcome, he said, but the Bank has highlighted the upside risks and the October figure is only 0.3 percentage points higher than its own forecast for the month.
The Bank has lifted its economic growth forecast for this year to 0.8%, from 0.7% at the time of the September meeting, with its forecast for the next two years increased to 1.2% and 1.3% on an expected decrease in load-shedding.
The governor also responded to questions about the reported resignation of deputy governor Kuben Naidoo, confirming Naidoo had “had conversations” with President Cyril Ramaphosa. The governor declined to comment on the content or the outcome. It is the president’s prerogative to appoint the governors and it is not clear whether Ramaphosa has agreed to a date for Naidoo’s departure.
Naidoo, whose term had been due to end in March 2025, has been in the public service for almost three decades and is said to want to do something different. But his departure could raise concerns about succession at the Bank, with the terms of the governor and the other two deputies due to end in 2024, though the president can appoint them for a further term.
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