South Africa’s inflation target is “out of sync” with its emerging market peers and should be adjusted downwards, according to Reserve Bank Governor Lesetja Kganyago, Bloomberg reports.
Speaking to Bloomberg Television during the annual International Monetary Fund and World Bank meetings in Washington on Thursday, Kganyago said that the current 3% to 6% inflation target is “overdue for review.”
South Africa’s annual inflation rate has slowed to 3.8% in September and is projected to remain below 4% for the next three quarters. However, the SARB (South African Reserve Bank) aims to anchor expectations around the midpoint of its inflation target range.
The SARB adopted inflation targeting in 2000, becoming an early adopter of the policy. However, its relatively high target range, compared to other emerging markets, has never been reformed. The SARB argues that this has led to a higher average inflation rate in South Africa than its peers and that a lower target is necessary.
While the SARB acknowledges the need for a review, it is likely to face significant political resistance to any changes that could lead to a more hawkish monetary policy. The central bank’s independence is enshrined in the South African constitution, but it has faced criticism from labor unions and some lawmakers who argue that its focus on low inflation has come at the expense of jobs.
South Africa’s high unemployment rate, exceeding 33%, and massive income inequality add another layer of complexity to the situation.
