South Africa’s Finance Minister on Inflation Target

JOHANNESBURG (Reuters) – South Africa’s finance minister reported progress towards a lower inflation target but emphasized the importance of not rushing the process. This follows a statement from the central bank advocating a lower target at its last interest rate announcement.

Recent indications suggest the government might soon unveil a lower inflation target, contingent upon the finance minister’s approval, which has subsequently lifted investor confidence and buoyed the bond market in recent weeks.

Despite South African Reserve Bank (SARB) Governor Lesetja Kganyago’s long-standing support for a target below the current 3%-6% range, Finance Minister Enoch Godongwana has approached the matter with caution.

> “Work is progressing well on the proposed lower inflation target,” noted Godongwana during a parliamentary session. “However, this responsibility lies with the Minister of Finance, who sets the target in consultation with the SARB.”

He added, “Such decisions should not be taken in haste, without necessary technical and political engagements that reach a genuine consensus, taking into account social and economic realities.”

In its May monetary policy announcement, the central bank revealed modeling for a lower target of 3%, which the Monetary Policy Committee found preferable compared to the midpoint of the 3%-6% range.

As of May, annual inflation was at 2.8%, the latest available data. The central bank’s next policy announcement is scheduled for July 31.