Finweek English Edition

Higher rates to come

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Reserve Bank governor Lesetja Kganyago delivered a great speech recently detailing South Africa’s inflation targeting. His key point was suggesting we work towards a 3% inflation target, with a 2% to 4% tolerance range. Currently the range is 3% to 6% but the governor always refers to the 4.5% mid-point. He also said the initial plan set when SA introduced inflation targeting back in 2000 was to reduce it over time and over the last few years inflation has average around 3.5%, so within the proposed range. Ultimately, if we want structural­ly lower inflation in future, we need the range to be lower, and the governor’s points are likely to find traction. In the short term it likely means no rate increases this year, but it does mean a higher interest rate sooner rather than later, if approved.

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