The Treasury and Reserve Bank have initiated steps aimed at changing the inflation target bank.
This information was revealed in a joint statement by both institutions, stating that implementing some changes to the macroeconomic policy framework could make it more effective.
The Reserve Bank’s monetary policy, which is a component of macroeconomic policy, hinges on inflation targeting.
The statement, released on Monday, comes after Finance Minister Enoch Godongwana a month ago dismissed speculation that the government was preparing to adopt a new 3% inflation target.
Aggressive interest rate cuts
“With the post-pandemic surge in inflation fading, the Treasury and the Reserve Bank have analysed and discussed the value of reducing inflation to levels consistent with the country’s trading partners,” reads the statement.
“South Africa continues to target inflation within the 3‒6% range, with the Reserve Bank focusing on anchoring inflation at the midpoint of the range, or 4.5%, since 2017.
“Research and consultations have, however, highlighted a range of specific challenges associated with a wide target band and the long-term costs to the economy and entrenched inequality caused by relatively high inflation.”
Macroeconomic policy review
It reads further: “Over the past year, inflation expectations have shifted downward in line with softer inflation outcomes.
“To sustain this progress and meet its constitutional mandate of price stability, at its July 2025 meeting, the Reserve Bank’s monetary policy committee expressed its preference for consumer price inflation to remain low, around the bottom end of the current target range of 3‒6%.
“Similarly, the Treasury, in its 2024 macroeconomic policy review, acknowledged that low and stable inflation is good for economic growth and concluded that monetary policy goals have broadly been achieved.
“The review also emphasised that, while the current macroeconomic policy framework is fit for purpose and flexible to changing conditions, some adjustments could make it more effective.
“In this regard, additional technical work was undertaken by the macroeconomic standing committee (MSC) of the two institutions to assess the appropriateness of the inflation target.
“As has been the practice, macroeconomic policy, including adjustments to the inflation target, will continue to be evidence-based.”
The two institutions said as the technical work draws to a close, the MSC will draft recommendations on the inflation target and table them to Godongwana and Kganyago.
“The minister of finance and governor will agree on any changes to the target band. The minister will make a formal announcement as soon as it is practical to anchor expectations.”
