Governor Kganyago Says Discussions On Lower Inflation Target Are Ongoing

Reuters runs comments from SARB Governor Lesetja Kganyago, who says that the central bank is in talks with the National Treasury on the potential decision to lower the inflation target, which is currently a range between +3%-6% Y/Y.

• Kganyago notes that SARB and Treasury teams will advise on the most appropriate level of the new target and the timeline to reach it. He adds that he would prefer the decision to be taken before 2025, but the central bank must first identify all the risks and think how to mitigate them.
• The Governor refuses to commit to any specific interest-rate path and says that "we don't think forward guidance is a very useful tool." He notes that South Africa's risk premium remains elevated, partly because of the uncertainty around the outcome of the upcoming elections.
• The Governor has repeatedly called for switching to a point-target towards the bottom end of the current target range (i.e. around +3% Y/Y), which would be in line with South Africa's emerging-market peers. A couple of months back, Bloomberg quoted the Treasury as confirming that talks on the matter have started.
• The SARB under Kganyago's stewardship has been more hawkish than permitted by the official CPI target range, signalling its preference to anchor inflation and inflation expectations at the mid-point of the range (+4.5% Y/Y) rather than merely keeping key price indices below the ceiling of the target band.