(Bloomberg) -- South African Reserve Bank Governor Lesetja Kganyago said the nation’s 3% to 6% inflation target was overdue for review and it should be adjusted lower.
“South Africa’s inflation target is out of sync,” he told Bloomberg Television on Thursday during the annual International Monetary Fund and World Bank meetings in Washington. “What is clear is that if we revise the target, the target can only be revised lower.”
The central bank aims to anchor inflation expectations around the midpoint of its target range and recent data has been encouraging. South Africa’s annual inflation slowed to 3.8% in September and is forecast by policymakers to remain below 4% over the next three quarters.
The SARB began formally pursuing an inflation target in 2000, making it an early adopter, but the goal has never been revised. The central bank says this is why the country’s inflation rate has been higher on average than other emerging markets and is working with Treasury to review it.
“It is now 24 years since we had the inflation target and we have to ask questions about how optimal the current inflation target is,” Kganyago said.
He didn’t say how close they were to a conclusion, but noted that other emerging market economies have lowered their inflation to around 3%.
Political Opposition
Still, in a nation distorted by massive income inequalities in which more than 33% of the workforce is unemployed, the central bank will likely face stiff political opposition to any changes viewed as leading to more hawkish monetary policy that sacrifices growth.
The SARB, whose independence is enshrined in the South African constitution, has faced longstanding criticism from labor unions and some lawmakers, who say it keeps rates too high in the pursuit of low inflation at the expense of jobs.
Kganyago, who has consistently made the case for a lower inflation goal, rebutted the argument that it would be at the expense of economic growth.
“There is no virtue in high inflation,” he said. “The lesson from the great inflation surge in 2022 had been that the public actually hate inflation.”
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