SARB moves toward 3% inflation target
A statement by South African Reserve Bank (SARB) Governor Lesetja Kganyago that the regulator plans to set a new inflation target at the lower end of the current 3% to 6% range has sparked debate within the government. SARB now aims to formally coordinate any changes.
On July 31, the SARB cut interest rates by 25 basis points to 7% and unexpectedly announced a preference to anchor inflation expectations closer to the lower end of its 3%–6% range.
Finance Minister Enoch Godongwana criticized the move, calling it unilateral and in violation of the "established consultation process" between the two institutions, which began reviewing the inflation framework last year.
A long-overdue change?
South Africa’s inflation target has not been revised since it was introduced in 2000. Since 2023, the inflation rate has declined and recently fell below 3%. Kganyago stated that although inflation is expected to rise in the coming months, this is likely to be temporary, and a return to around 3% is expected in the medium term.
Further disinflation may allow SARB to continue lowering interest rates. Forward rate agreements are now pricing in 21 basis points of easing — an 84% probability of a 25-basis-point cut by year-end, compared to just 14 basis points a week ago. In total, 43 basis points of easing are priced over the next 12 months.
Policymakers have long advocated for a 3% target, arguing it would reduce borrowing costs and enhance economic competitiveness in the medium term.
As we wrote, SARB may cut interest rates to 7% as U.S. tariffs loom
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