Finance Minister Enoch Godongwana has dismissed speculation that the government is preparing to adopt a new 3% inflation target.
This comes after South African Reserve Bank governor Lesetja Kganyago announced that the monetary policy committee prefers to aim for 3% inflation and will base its forecast on that figure going forward.
Kganyago said the central bank’s model shows that by targeting 3%, core inflation would remain steady, expectations would shift to a new low-inflation environment by 2027, and the exchange rate would likely strengthen.
This approach, he said, would also give the Reserve Bank room to cut rates further. It will potentially bring the repo rate slightly below 6% over the medium term.
“We will use forecasts with a 3% inflation anchor at future meetings. The South African Reserve Bank will also continue working with the National Treasury to complete target reform and achieve permanently low inflation,” said Kganyago.
Deputy Minister of Finance David Masondo reportedly said in May that lower inflation target could be introduced soon.
However, Godongwana contradicted both, saying no such move is planned.
Consultation process
He said this sparked public and market expectations that he would confirm the shift during the upcoming medium-term budget policy statement.
“As I emphasised during the budget presentation, any adjustments to our inflation-targeting framework will follow the established consultation process.
“This means comprehensive consultation between the National Treasury, the Reserve Bank, the Cabinet, and relevant stakeholders — not unilateral announcements that preempt legitimate policy deliberation,” said Godongwana.
The Reserve Bank works independently to meet that target, but it does not set it on its own.
“Any changes to the target, if necessary, will follow this process that I have outlined above,” said Godongwana.
Godongwana maintains that any modifications to inflation targets must undergo a consultation process.
At the time, the rand reacted positively to the news, trading at R18.07 to the dollar.
