SARB takes revised inflation target down to 3%

JOHANNESBURG - The South African Reserve Bank (SARB) has taken its revised inflation target down to 3%, on the lower end of its inflation target band of 3% and 6%.

The unexpected decision was taken during the monetary policy committee's (MPC) fourth meeting this week to deliberate on the policy rates.

After dropping the repo rate by 25 basis points to 7%, the MPC has now also adopted a new target.

READ: MPC opts to cut repo rate by 25 basis point to 7%

While a case for a lower inflation target has been made for a few years now, calls for a revision have recently picked up momentum.

Having adopted its 3% to 6% range in 2000, the central bank has since 2017 preferred to target inflation at the midpoint of 4.5% of that range.

The reserve bank has repeatedly admitted that the existing 3%-6% target is too high and too wide, with the MPC again considering a scenario with an inflation objective on the lower end and not the midpoint during its previous meeting.

Reserve Bank Governor Lesetja Kganyago said the lower inflation was likely to reduce the economy’s average interest rate over time, bringing borrowing costs down.

"The target range remains 3%-6%, all that we are doing today is doing exactly what we did in 2017, to say given where inflation is, we prefer to lock the gains there and within this target range of 3% and 6%, we shall aim for the bottom of the range which happens to be 3%."

He said the reserve bank was still in talks with Treasury to complete target reforms and achieve permanently low inflation.