Online Reporter
The South African Reserve Bank (Sarb) sent its strongest signal yet on Thursday that a lower inflation target for the country is being finalised.
Not only did all six members of its Monetary Policy Committee (MPC) vote for a cut in the benchmark repo rate to 7,25 percent, but Sarb Governor Lesetja Kganyago and other members voiced strong support for lowering its inflation target.
Five members voted for the 25-basis-point (bp) cut, and one wanted it slashed by 50bps — a somewhat unexpected move, given that most economists forecasted a split vote ahead of the MPC meeting.
The Sarb’s inflation target of 3 percent to 6 percent has been in place since 2000, but discussions around lowering the target framework have gained traction over the past year, with National Treasury officials and Finance Minister Enoch Godongwana and his deputies increasingly talking up the case for a lower target.
Addressing a post-MPC media briefing, Kganyago said technical work on the review “is at an advanced stage”.
“Now that inflation has slowed, we have a chance to lock in lower inflation at low cost,” he said, adding that lowering the inflation target “will lock in lower interest rates going forward”.
He confirmed that the MPC considers a 3 percent scenario for inflation targeting more attractive than the 4,5 percent baseline.
“[We] would like to see inflation expectations move lower, towards the bottom end of our target range. We will also consider scenarios with a 3 percent objective at future meetings,” he noted.
Kganyago said most advanced economies target 2 percent inflation, while emerging markets target 3 percent. He added that several countries have revised their inflation targets downward.
“What the scenario shows is that you actually end up with higher growth over the forecast horizon, and higher growth will benefit the entire economy,” he said. — Moneyweb
