Sarb's potential shift to 3% inflation target could benefit SA economy - economists

ECONOMISTS have concurred that the South African Reserve Bank (Sarb) could help lower the borrowing costs, boost investor confidence, and economic growth by reducing its inflation targeting to 3% per annum.

- SIPHELELE DLUDLA

This comes as discussions have emerged regarding whether South Africa’s current inflation target midpoint of 4.5% is consistent with price stability and whether adjusting it to a lower rate might help secure the current trend of low inflation

Analyses undertaken by the Sarb, the National Treasury, and other experts highlight significant potential benefits from reducing the inflation target to 3%.

Recent comments from the Sarb about potentially lowering the inflation target led market participants to recalibrate inflation expectations downward.

According to the Bank of America (BofA) Global Research's latest South Africa Viewpoint on Monday, there is more to gain and less to lose by moving to 3% inflation target.

“We think moving to 3% is almost certain. The Sarb would not have intensified its desire if it did not have buy-in - at least in private if not publicly. Markets would not have reacted positively if the moves were in doubt,” said Tatonga Rusike, BofA’s sub-Saharan Africa economist.