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South Africa would gain significant economic benefits by adopting a lower inflation target though the process should be carefully managed, according to the International Monetary Fund.
“Shifting from the current target band to a lower point target at an appropriate time could help lower expectations and inflation,” the IMF said on Tuesday in its regular update on the country’s economic health. “Careful design and gradual implementation will be key to minimise potential near-term output costs.”
The South African Reserve Bank Governor Lesetja Kganyago said last week that a review of its 3 percent to 6 percent inflation target band — which was adopted in 2000 and has not been revised since — was getting close to the end.
He declined to give a timeline for the conclusion of talks between it and National Treasury on the matter and dismissed suggestions that the central bank was already targeting a lower goal in “secret.” The Sarb currently aims to anchor inflation expectations at the midpoint of its band and Kganyago has previously advocated for lowering the target.
“A well-calibrated tolerance band can help provide flexibility given the volatile and shock-prone global environment,” the Washington-based lender said. “Close coordination between the Treasury and the Sarb and clear communication of policy plans will be critical to support credibility and anchor expectations.” — Bloomberg
Bongani Ndlovu