Treasury backs Sarb inflation target review

National Treasury says there’s a case to be made for the inflation target of the South African Reserve Bank (Sarb) to be reviewed to improve competitiveness and given the adverse impact price growth has on the poor.

The Sarb’s current target band is 3%-6% with a preference for inflation to be anchored at the midpoint and has advocated for it to be lowered for several years.

Governor Lesetja Kganyago has repeatedly said that a single-point inflation target of three percent would be in line with SA’s peers and allow for lower interest rates, while making price growth less of a concern in the daily lives of South Africans.

While Treasury said the central bank had been able to achieve its goal of price stability and anchoring inflation expectations, it questioned its current definition of the target given price growth differentials compared with its peers and trading partners.

“Technical work on the appropriate level of an inflation target for South Africa’s current economic context, both global and domestic, and what form such a target should take – point or range – should continue,” it said in its macroeconomic policy review released last week alongside the 2024 Budget.

“Any possible future decision must be based on evidence and communicated in a transparent manner.”

It also said the Sarb should discuss more explicitly the impact of fiscal policy on its inflation and growth projections. The central bank has repeatedly said that fiscal slippage was a risk to achieving lower inflation.

At its rate-setting meeting last month, it decided to keep borrowing costs at a 2009 high of 8.25% for a fourth time in a row because of lingering inflation risks.

Inflation was 5.3% in January and has been above the midpoint for almost three years.

The monetary policy committee will announce its next rate decision on 27 March. –