South Africa’s central bank and the National Treasury have reached a critical understanding on lowering the country’s inflation target, marking the end of weeks of policy friction between Reserve Bank Governor Lesetja Kganyago and Finance Minister Enoch Godongwana.
- South Africa’s central bank and National Treasury have agreed to lower the inflation target, resolving policy friction.
- The decision aims to strengthen economic stability and enhance investor confidence amid global uncertainty.
- The move aligns with efforts to rebuild fiscal credibility and attract foreign investment to South Africa.
- Lower inflation targets are expected to reduce borrowing costs and support economic growth.
South African Reserve Bank (SARB) Governor Lesetja Kganyago says the central bank and the National Treasury have agreed to lower the country’s inflation target but are still deciding on the timing of the change.
The consensus comes after a public disagreement in July over the appropriate inflation range, a dispute that had stirred uncertainty in financial markets and raised questions about coordination between the two top economic institutions.
According to South African Reserve Bank (SARB) Governor, Kganyago, the move is meant to reinforce economic stability and strengthen investor confidence amid global market uncertainty.
Speaking before lawmakers on Thursday, Kganyago clarified that there was “no disagreement” on the goal itself.
“It’s a question of timing,” he explained. “The poor chaps are working very hard to make sure that all those loose ends are tied.”
He also acknowledged that the SARB’s earlier communication when he surprised markets by announcing a de facto 3% inflation target, had “not been what it was supposed to be.”
Finance Minister Enoch Godongwana had previously rebuked Kganyago for acting unilaterally, though the two later issued a joint statement reaffirming alignment on the broader policy direction as per Reuters.
Inflation Strategy Seen as Key to Economic Credibility
Kganyago has long argued that South Africa’s current 3–6% inflation band makes the economy less competitive.
With inflation pressures relatively subdued in 2025, he said the moment was right to “lock in” low inflation and anchor expectations.
“The lower inflation and SARB’s preference for a tighter target have boosted the rand and reduced government borrowing costs by 80 to 160 basis points since April,” Kganyago noted.
“When the cost of borrowing for the government comes down, the cost of borrowing for everybody else also comes down.”
The central bank’s push toward a lower inflation target reflects South Africa’s broader effort to rebuild fiscal credibility and attract foreign investment.
The decision comes as Pretoria grapples with ongoing tensions with the United States, following Washington’s review of South Africa’s trade benefits under the African Growth and Opportunity Act (AGOA).
Analysts say demonstrating sound monetary discipline could help Pretoria signal economic resilience despite the political strain with its major trading partner.
A Balancing Act Amid Economic and Political Pressures
President Cyril Ramaphosa’s recent declaration of a state of emergency in response to ongoing power disruptions and nationwide protests over service delivery has added further urgency to the government’s stabilisation efforts.
The move reveals the growing economic and political pressures on South Africa’s leadership, as the country struggles to balance fiscal consolidation with social stability.
For Kganyago, reducing inflation is both an economic and symbolic priority: a signal to investors that South Africa is serious about long-term growth, even as it navigates complex domestic and international challenges.
