* Central bank filed court challenge against mandate change
* Finance minister, parliament also oppose proposal
* Row over central bank has hit rand, government bonds (Recasts lede with finmin lodging official challenge)
By Olivia Kumwenda-Mtambo
JOHANNESBURG, July 6 (Reuters) - South Africa's Finance Minister Malusi Gigaba on Thursday lodged a court challenge to the anti-graft watchdog's proposal that the central bank be forced to switch the target of its monetary policy from inflation and currency stability to economic growth.
Earlier in the day the anti-graft unit head Busisiwe Mkhwebane, whose official title is Public Protector, stood by her bid to force the central bank to target growth rather than inflation.
Mkhwebane set off a political row last month when she said the South African Reserve Bank's mandate should focus on growth and not on inflation and the currency, rattling investors and the rand.
The central bank has filed a court challenge to quash the recommendation, which is also opposed by parliament and now officially by the Treasury.
In an affidavit published on the Treasury website, Gigaba said that the Public Protector's recommendations violated several provisions of the constitution and that she should have consulted the finance minister before making the proposal.
"There is no basis to the conclusion that the Reserve Bank should not play the role of protecting the value of the currency," Gigaba said.
Earlier on Thursday the Public Protector's spokeswoman Cleopatra Mosana said Mkhwebane had filed a notice opposing the challenges to her recommendation.
"The Public Protector is empowered, by the constitution, to take appropriate remedial action with regard to any improper conduct in the state affairs or conduct, or conduct in the state affairs which may result in any impropriety or prejudice," Mosana said.
Gigaba and opponents of the proposal say Mkhwebane was exceeding her mandate in making the recommendation. Critics say that Mkhwebane's role is to confront maladministration, not make central bank policy.
Analysts say it is unclear what prompted Mkhwebane's recommendation and that it would be up to the courts to decide whether her mandate extends to the central bank.
The row over the central bank has highlighted divisions in the tripartite political alliance of the ruling ANC, the country's biggest union, Cosatu, and the South African Communist Party (SACP) over the role of the reserve bank.
Both the ANC and the SACP are opposed to altering the mandate the central bank. Cosatu, however, has backed calls for changes saying the bank is not acting in the interests of South Africa's poor majority.
Investors were further unsettled this week after the ruling African National Congress proposed at its policy conference to nationalise the reserve bank.
Ratings agencies have warned that South Africa risked further downgrades if the independence of institutions such as the central bank was undermined. A cabinet reshuffle in March saw a respected finance minister fired, leading to South Africa credit rating being downgraded to "junk" by S&P Global ratings and Fitch.
Central bank's deputy governor Kuben Naidoo on Thursday acknowledged that inflation targeting was imperfect but said it was the best policy for now.
"Inflation targeting has its flaws but I think it's the least bad option for South Africa in the present environment given our economic circumstances," Naidoo told a public lecture.
Deputy Finance Minister Sfiso Buthelezi said last week there was a need to debate whether the central bank's inflation targeting range of 3 to 6 percent was still appropriate, as the country battles with its first recession in eight years.
"Perhaps it's a good (inflation targeting) band, but we set this 3 to 6 percent under different economic conditions, is it still relevant now? Is it a policy for all seasons?" Buthelezi said.
South Africa's headline consumer inflation rose slightly more than expected to 5.4 percent year-on-year in May from 5.3 percent in April, data showed.
The rand held near seven-week lows on Thursday, while government bonds also weakened. (Additional reporting by Mfuneko Toyana; Editing by James Macharia and Jon Boyle)