South Africa’s inflation target should be lower

FILE: Reserve Bank Governor Lesetja Kganyago attends the 2017 World Economic Forum in Davos, Switzerland. Picture: Renart Toerien/EWN

The South African Central Bank’s 3-6 per cent inflation target range should probably be lower to bring it into line with emerging market peers, Governor Lesetja Kganyago said on Wednesday.

“A frank reassessment of the 3-6 per cent inflation target range, which is now almost 18 years old, would probably conclude that the target should be lower,” Kganyago said in a public lecture.

“My economists have worked on the numbers, and they report that if we want an inflation rate in line with our trading partners, we should be aiming for 3-4 per cent, that is not where we are today.”

South Africa’s Deputy Finance Minister Sfiso Buthelezi said in July there was a need to debate whether the 3-6 per cent range – which is a government policy – was still relevant.

“Nowadays most emerging markets have targets of around three per cent or four per cent.

”For instance, India adopted a four per cent inflation target last year, and Brazil has just revised its target down to four per cent,” Kganyago added.

South Africa’s consumer price inflation fell to 4.6 per cent year-on-year in July, its lowest in nearly two years, boosting the chances of further interest rate cuts by the
central bank.

Kganyago’s comments come after a court on Aug. 15 rejected a call by
the anti-graft-watchdog for the central bank to focus its monetary-policy on boosting economic-growth instead of on fighting inflation and keeping the rand currency stable.

Public-Protector Busisiwe Mkhwebane, whose job is to ensure proper-conduct in public-office, sparked a political-row and a big sell-off of the rand when she proposed the change in the central bank’s monetary policy target in June.

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