* ANC’s Magashule: party agreed to expand c.bank mandate
* But another senior official says no such decision taken
* Contradictory comments come hours after big GDP decline
* President Ramaphosa’s reform drive on the ropes (Updates after Godongwana comments)
By Mfuneko Toyana and Alexander Winning
PRETORIA/JOHANNESBURG, June 4 (Reuters) - Senior officials from South Africa’s governing party contradicted each other on Tuesday over whether the party had decided to expand the central bank’s mandate, hours after data showed the worst economic contraction in a decade.
The disagreement between ANC Secretary General Ace Magashule and Enoch Godongwana, head of the party’s economic transformation committee, reopened a heated debate about whether the central bank should explicitly target job creation and economic growth alongside its current focus, inflation.
Magashule’s comments at a news conference that the ANC’s executive had agreed to broaden the bank’s mandate “beyond price stability to include growth and employment” weakened the rand , as investors are nervous about changes that could curb the independence of the bank.
Magashule, who is responsible for the day-to-day running of the ANC, is part of a faction within the party that has tried to push President Cyril Ramaphosa into pursuing more radical economic policies.
Godongwana, who is aligned with Ramaphosa’s faction in the ANC and is a leading voice on economic policy, said that in 2010 the then-finance minister had written to the South African Reserve Bank (SARB) to take into account employment and growth and that since then there had been no change.
“There is no decision to expand its mandate,” he said, adding that other comments by Magashule on Tuesday that the ANC wanted to explore the possibility of quantitative easing were also inaccurate.
A spokeswoman for the central bank, whose Governor Lesetja Kganyago has opposed altering the bank’s focus, told Reuters that officials would consult with Finance Minister Tito Mboweni.
Ramaphosa did not immediately respond to Magashule’s remarks. In January, after a call for a broader focus for the central bank appeared in the ANC’s election manifesto, Ramaphosa said the party had no intention of interfering with the independence of the central bank.
Analysts said the tussle over the SARB would be a worry for credit rating agencies, which cite the strength of institutions like the bank among factors preventing further downgrades.
South Africa only has one investment-grade credit rating left, from Moody’s, and the outlook for that rating was hurt by data on Tuesday showing that gross domestic product had contracted by a quarterly 3.2% in the first three months of 2019.
The shock GDP reading, driven mainly by manufacturing and mining, was far worse than the 1.7% decline economists had expected and was another sign that Ramaphosa’s growth drive is struggling to gain traction.
Investor confidence in Africa’s most industrialised economy remains fragile, despite Ramaphosa’s pledges to woo investment, create jobs and root out rampant corruption after his party won re-election last month.
He faces formidable obstacles, including factional fighting within the ANC, weak consumer demand and ailing state firms like power utility Eskom, which was forced by capacity constraints to impose blackouts early this year.
Although Moody’s still has South Africa’s credit rating at Baa3, the lowest rung of investment grade, some economists fear the power crisis and other economic frailties could cost the country that rating and lead to billions of dollars of outflows.
Fixing Eskom and other loss-making state-owned firms such as South African Airways (SAA) is seen as critical to shoring up confidence among the investors South Africa relies on to finance its big budget and current account deficits.
“The South African economy is not doing well; there are all these false starts where we think the economy is just about to re-accelerate and then it drops back again,” said Cristian Maggio, head of emerging markets strategy at TD Securities.
“The government really has very little time to start doing what it has to do.”
Statistician General Risenga Maluleke said controlled power outages by Eskom had contributed to the economy’s decline in the first quarter.
Tuesday’s data showed mining output dropped 10.8% in the first quarter from October-December. Manufacturing output fell 8.8%, agriculture dropped 13.2% and construction declined 2.2%.
But output edged up 1.1% in the finance sector.
Year-on-year growth in the first quarter was zero compared with forecasts for growth of 0.7%, the statistics office said.
A recent Reuters poll forecast the South African economy would expand by around 1% in 2019 as a whole, compared with growth of 0.8% last year, although analysts are likely to revise that view in light of the new data.
Even that level of growth would be insufficient to make a meaningful dent in poverty and unemployment or reduce severe inequality, which persists in South Africa more than two decades after the end of white minority rule.
Additional reporting by Karin Strohecker in London; Editing by Catherine Evans and Lisa Shumaker