Lesetja Kganyago (Tebogo Letsie)
South Africa’s central bank must restore faith
in its ability to achieve its inflation target after struggling to slow
consumer price growth to 4.5% for about three years, Governor Lesetja Kganyago
said.
The Reserve Bank officially targets inflation
in a range of 3% to 6%, but its monetary policy committee prefers to anchor
price-growth expectations close to the midpoint. The annual inflation rate was 5.2% in May, unchanged from
the previous month.
After the worst global inflation shock in a
generation, headline price growth returned to the central bank’s target band in
June 2023 “but has since then been stuck in the top half of that range,
making no clear progress towards our 4.5% midpoint objective,” Kganyago
said in a message in the central bank’s annual report published Tuesday. “It
is important that we rebuild confidence in our ability to achieve our target,”
he said.
The central bank sees inflation averaging 5.1%
this year and stabilising at 4.5% in the second quarter of 2025. South Africa’s
average inflation expectations
are 5.4% for this year and 5.3% next year, according to the latest survey of
analysts, businesspeople, labour unions and households conducted by the
Stellenbosch-based Bureau for Economic Research.
Upside risks
The MPC has been holding the benchmark
interest rate at 8.25%, a level it considers restrictive, to achieve its
target, Kganyago said.
While the central bank’s quarterly projection
model, which the MPC uses as a guide, shows borrowing costs easing this year as
inflation slows, upside risks to the forecast – including higher interest rates
in advanced economies, and less stable inflation expectations – are prompting
policymakers to keep the key rate on hold, the governor said.
Despite South Africa’s “relatively benign”
recent inflation performance compared with advanced and emerging market
economies, it is likely to have the third-worst inflation rate among the Group
of 20 nations from 2026, Kganyago said citing International Monetary Fund
forecasts. That’s as the country’s inflation goal of 4.5% is high relative to
its peers and weighs on competitiveness, he said.
In February, South Africa’s National Treasury
said there’s a case to be made for the inflation target to be reviewed
to improve competitiveness and offset the adverse impact price growth has on
the poor.
“South Africa can and should have lower
inflation,” said Kganyago, who has long advocated for a reduced target.
