Kganyago says South Africa’s inflation target should be lower
South African Reserve Bank Governor Lesetja Kganyago said the nation’s inflation target was overdue for review and it should be adjusted lower.
“South Africa’s inflation target is out of sync with emerging market peers,” he told Bloomberg Television on Thursday during the annual International Monetary Fund and World Bank meetings in Washington.
"What is clear is that if we revise the target, the target can only be revised lower.”
The central bank aims to anchor expectations around the midpoint of its 3% to 6% inflation target. South African annual inflation slowed to 3.8% in September and is forecast by the central bank to remain below 4% over the next three quarters.
The SARB adopted inflation targeting in 2000. The National Treasury said in February that the goals were under review and Kganyago argued in a October 17 speech that any changes should result in the target being lowered.
While South Africa was an early adopter of the target range it is relatively high compared with its emerging market peers and has never been reformed. The SARB says this is why the country’s inflation rate has been higher on average than its emerging market peers, and should be lowered.
Still, in a nation distorted by massive income inequalities in which more than 33% of the workforce is unemployed, the central bank will likely face stiff political opposition to any changes viewed as leading to more hawkish monetary policy.
The SARB, whose independence is enshrined in the South African constitution, has faced longstanding criticism from labour unions and some lawmakers, who say it keeps rates too high in the pursuit of low inflation at the expense of jobs.
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