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Kganyago’s Call for Lower Inflation Target Likely to Fall on Deaf Ears

SOUTH AFRICA
  • Comments from Kganyago have again raised speculation around the SARB’s mandate and the viability of a lower inflation target (currently a range of 3 – 6%). This topic was raised on multiple occasions last year, where the bank undertook a broad policy review and considered the implications of a 3% CPI goal.
  • The SARB concluded that the case for a lower target was “strong”, leading the governor to state that the longer-term goal is to reduce the inflation target, and that “nothing is stopping” the SARB from tweaking policy goals.
  • Nonetheless, Kganyago’s statements are unlikely to prompt any U-turn among politicians, who have been highly critical of the proposals. Instead, the focus for government has been on an explicit mention of job creation in the SARB mandate – another tweak that would require constitutional rewrites and internal challenges for policymakers.
  • The view inside the SARB has been that output mechanics sit outside of the remit of monetary policy, and shouldn’t be considered as part of the mandate.
  • With the ANC gripped by internal spats and over-arching power generation issues, no change in either direction to the SARB’s mandate seems likely ahead of the 2024 general elections.
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