Lesecha kganyago. (File photo/MG)
South African Reserve Bank Governor Lesetya Kganyago has set her sights on lowering the country's inflation target after achieving the 4.5% target introduced in 2017 monetary policy.
This week's data from Statistics South Africa shows that inflation has eased for four consecutive months this year alone, to 3.8% in September from 4.4% in August and 4.6% in July. is. Inflation is the lowest in more than three years in the latest print edition.
In its September forecast, the Reserve Bank said it expected inflation to remain below 4.5%, the midpoint of the range, until the end of the forecast period in 2026.
Annabelle Bishop, chief economist at Investec, said the latest figures were far below economists' expectations and paved the way for annual inflation to average around 4% in 2025.
“Overall, this year should average 4.2% year-on-year. This means that an inflation target of at least 4.0% year-on-year will be more easily implemented if the inflation target is set in next week's medium-term budget policy statement. “It shows it's possible,” he said.
Mr Kganyago revisited the debate over lowering the inflation target when he spoke at Stellenbosch University this month.
Without citing specific targets, Kganyago said: “I will focus on moving to 4.5% as an interim goal for monetary policy, a change that we introduced in 2017.'' and our ongoing discussions on inflation targeting.” The hope is to keep pace with your peers and move towards lower goals. ”
the bishop said email and guardian The Reserve Bank has repeatedly emphasized the need to lower its inflation target to bring it closer to major trading partners such as Europe, China, the United States and the United Kingdom, which have inflation targets close to 2% a year. -All year round.
Stanlib economist Kevin Rings said aligning targets with South Africa's would make South Africa more competitive in global markets, while consumers would also benefit from lower interest rates.
“If we can keep inflation low, average interest rates can also come down, and that definitely helps. It helps in any country. It lowers the cost of doing business, it lowers the cost of capital, it lowers the cost of finance for households. It should also bring a little more stability to the currency.”
“With low inflation, you would expect your currency to be more stable than it has been in the past, which is also good for business and for budgeting and planning, such as import costs. “I think it should be easier for people to buy houses and cars,” he said.
Inflation targeting was introduced in South Africa in 2000 to guide monetary policy and interest rate decisions and support price stability.
Mr Kganyago said inflation and interest rates were lower than before the target. “Inflation is also within the target range of 3% to 6% on average, although this average is on the higher end of the target range.
“Since 2000, using the 'targeted inflation' measure, it has averaged 5.85%. It has also very often missed the target and has been almost exclusively upward. We were almost 40% above, but only 1% were below the 3% floor.”
He said that starting in 2017, the Monetary Policy Committee began aiming for 4.5%, the midpoint of the 3-6% target.
“We have said clearly that we want to reach a middle ground over time. This range will be in place to deal with the volatility that is inevitable due to inflation. “But over time, the Reserve Bank will always strive to bring inflation back to 4.5%.”
But Rings said more stability was needed before setting goals.
“In the short term, inflation could easily stay below 4% and approach 3%. So if you are the Reserve Bank, you have started cutting interest rates, you know that inflation looks okay, Given that the currency is looking OK, this is the time to continue cutting, and then the benefits in gas prices will disappear.”
“The discussion of inflation targeting is happening at a time when things are good in terms of inflation, but how realistic is it that it will continue if we get the economy back on track? I have doubts,” he said.
Rings was referring to lower inflation rates in sectors such as housing, clothing and electronics due to weaker economic activity. However, as economic activity picks up and growth accelerates, inflation in these categories is expected to rise.
Referring to fluctuations in inflation, Kganyago said, “It is easy to understand inflationary movements caused by things like gas prices.However, over long periods of time, such as 10 years, these factors are not the main drivers of volatility. Yes, and nothing more.”
“The central bank is most responsible for long-term price levels,'' he said.
Given the current economic climate, Rings said it would be safer to target inflation at around 4% rather than a 3% target.
“It is important to recognize that we need to consider achievable policies based on realistic numbers and not in the short term.
“I think we need ambitious goals, but we don't want them to be so ambitious that we have trouble achieving them and undermine the credibility of the goal,” Rings said.
