Finance Minister lowers inflation target to 3% to ease cost of living and boost stability

South African Reserve Bank defends lower inflation target as key to boosting real incomes and spending

- SIPHELELE DLUDLA

THE South African Reserve Bank (SARB) Governor Lesetja Kganyago has defended the government's decision to lower the inflation target, saying the move is aimed at protecting the value of money, enhancing consumer purchasing power, and improving fiscal efficiency.

This comes as Finance Minister Enoch Godongwana on Wednesday officially reduced South Africa's inflation target to 3% with a tolerance band of 1 percentage point on either side over the next two years in a bid to ease the elevated cost of living on consumers.

This new target immediately replaces the previous target range of between 3 and 6% with a midpoint of 4.5%, which has been implemented since 2000.

Over the past year, the National Treasury and the Sarb conducted joint research on the benefit of a lower inflation target on the economy and the fiscal framework.

Speaking during an embargoed media briefing before the tabling of the Medium-Term Budget Policy Statement, Kganyago said lowering the inflation target would anchor expectations, enhance predictability in the economy, and ultimately strengthen both household and government spending.

“You see, when inflation walks through the door, public trust jumps out through the window and the money becomes worthless. The lowering of the target is one thing, achieving it is another,’ Kganyago said.