Sarb sticks with inflation band

The SA Reserve Bank (Sarb) has no immediate plans to change its 3-6% inflation target range to a single target of 4.5%.

Speaking at a S&P Dow Jones Indices seminar on Tuesday, Sarb Deputy Governor Daniel Mminele said it doesn’t set its own mandate, but there are intermittent discussions with government about the appropriateness of the target range.

“At this stage, there are no plans to consider a change in that range.”

Sarb has used a 3-6% inflation target range for some time, but there has been a subtle shift under Governor Lesetja Kganyago’s leadership to emphasise the midpoint of the range.

Mminele said that after Sarb adopt an inflation targeting range, it tends to narrow. Ultimately, it converts to a point target with deviations on either side.

“So these are the kind of steps that typically get followed as and when the regime matures.”

Mminele said, in his view, the current target specification is fine.

Kganyago has indicated that Sarb wants to see inflation readings closer to the midpoint of the range, and it has had some success. Consumer price inflation slowed to 4.5% in December.

Sarb has found itself at the centre of policy debates in the run up to the May 8 election.

Although its private shareholders, mandate and independence are different topics on paper, practically, they’re some- what intertwined, and seemingly diverse views within the ANC on how the bank should operate have left investors with more questions than answers.

While the ANC’s national elective conference decided in 2017 that Sarb should be nationalised, its 2019 election manifesto didn’t expressly revisit the issue. Instead it indicated that Sarb must “pursue a flexible monetary policy regime”.

“Without sacrificing price stability, monetary policy must take into account other objectives such as employment creation and economic growth,” it said.

President Cyril Ramaphosa has been quick to allay fears that the ANC is seeking a change in the bank’s mandate or hoping to tamper with its independence.

Mminele said it had “at times” been suggested that Sarb should place greater emphasis on growth and employment objectives and that its mandate should be changed to make these objectives clearer.

“These suggestions may miss the key channels through which monetary policy best serves the goal of long-term economic development.”

He said South Africa’s monetary policy framework is not one of rigid inflation targeting, but a flexible one which takes account of the outlook for real economic growth and how it is likely to affect inflation.

“Trying to kick-start economic growth and employment through a larger dose of monetary policy stimulus would probably only have a short-lived impact on activity. By contrast, its implications for the current account, for policy uncertainty and inflation expectations would most likely be negative.”