Reserve Bank says inflation target review still on the cards

JOHANNESBURG - The Reserve Bank says a review of its inflation target is still on the cards as monetary policy heads meet for the central bank’s biennial conference this week. 

The two-day meeting kicked off in Cape Town on Thursday.

It comes on the backdrop of an increasingly complex global environment for central banks, characterised by slowing disinflation, rising economic fragmentation and conflict, and heightened fiscal risks. 

Domestically, the conference coincides with efforts to explore a more effective inflation target. 

South Africa introduced its inflation-targeting framework in 2000 and had planned to lower the target first to 3% - 5% and then 2% -4%. 

Since 2017, the Reserve Bank’s Monetary Policy Committee (MPC) has preferred to anchor inflation close to the 4.5% midpoint of the 3–6% target range. 

READ: Economists weigh in on Reserve Bank's decision to hold repo rate at 7.5%

The central bank said the inflation targeting framework has served the country well since its adoption, lowering the repo rate from highs of more than 20% in 1998 to the current 7.5%.

Inflation targeting has also reduced macroeconomic instability, enabling the economy to weather shocks better, including the 2008 financial crisis and the COVID-19 pandemic. 

But Reserve Bank Governor Lesetja Kganyago said SA's framework has not kept up with international standards. 

"The South African target is now rather dated, reducing our competitiveness and opportunity to generate faster and more sustainable growth."

While the central bank has its eye on lowering the target, it may still be a while.