South Africa books ‘big wins’ on lower inflation, Kganyago says
South African central bank Governor Lesetja Kganyago said lower inflation has delivered “big wins” by reducing government borrowing costs, vindicating his decision to anchor the rate at the bottom of the bank’s 3% to 6% target range.
“There are benefits to having a low inflation economy,” he told a parliamentary hearing in Cape Town on Thursday, noting prices double every 12 years when inflation averages 6%, but only every 24 years when it averages 3% — urging lawmakers to “make your pick.”
Yields on South Africa’s 10-year bond have fallen to around 9.1% from more than 11% in April, as price pressures eased below 3%. The decline accelerated after Kganyago’s July 31 announcement that the central bank prefers inflation to settle at 3%.
“Inflation is relatively contained, remaining close to our target” although near-term overshoots “are expected, but are deemed to be temporary,” he said. “Indications from the agricultural sector point to food inflation declining going forward.”
While Finance Minister Enoch Godongwana has not formally ratified the new anchor, the National Treasury and the central bank signalled in September that technical work to review the 3%-to-6% target band, which has been in place since 2000, is nearing an end.
They said in a joint statement that Godongwana will make an announcement as soon as is practical to anchor expectations.
“Sustained low inflation brings about lower and stable interest rates, which is good for investment, employment and growth,” Kganyago told the hearing.
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