South African Reserve Bank Governor, Lesetja Kganyago, announced on Thursday that the country could lower its inflation target with minimal economic cost.
Kganyago, a vocal proponent of lowering the inflation target, highlighted this potential shift during a lecture at the University of Stellenbosch. He stated that a reduced target could help stabilize inflation and interest rates, benefiting the economy.
The central bank’s current inflation target range stands at 3% to 6%, but Kganyago emphasized that since 2017, the bank has preferred keeping inflation close to 4.5%, the midpoint of this range.
“Executed effectively, a lower target could be achieved at little cost, just as we moved to 4.5% at little cost,” Kganyago said.
He cited research showing that the focus on a 4.5% midpoint has not harmed economic growth, adding that clear communication played a key role in achieving this.
Kganyago had previously told Reuters that a decision on a lower inflation target could be reached before 2025, aligning South Africa with other emerging market peers.
He argued that the current inflation range is too broad and anchors inflation expectations higher than desired by policymakers.
South Africa introduced its inflation-targeting framework in 2000, initially aiming to narrow the range to 3%-5% and eventually 2%-4%.
If the discussions with the National Treasury lead to a lower target, South Africa may see more stable inflation with little economic downside.
