SA Sets 3% Inflation Target, Confidence Levels Pending
Cape Town, South Africa — The government of South Africa has announced a new inflation-target framework, narrowing the range to a midpoint of 3 % with a tolerance band of plus/minus 1 percentage point, replacing the previous 3-6 % range.
The decision was jointly made by the South African Reserve Bank (SARB) Governor Lesetja Kganyago and Enoch Godongwana, the Finance Minister, following consultation with the President and Cabinet, and an internal review by the National Treasury and SARB.
Under the revised target, the SARB will aim to keep inflation within the band of 2 % to 4 % over time. The statement notes the narrower band is intended to “better anchor inflation expectations” and align South Africa with “international best practice.”
Implementation is set to occur over the next two years, during which the previous 3-6 % range will be phased out. The authorities said the lower target should eventually support lower interest rates and thus bolster both household spending and business investment.
Treasury and the SARB acknowledged there are short-term trade-offs. A lower inflation target could mean slower nominal GDP and revenue growth, making fiscal targets more challenging. However, they concluded the long-term benefits to the economy outweigh those concerns.
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