South Africa central bank eyes lower inflation target

South Africa’s central bank governor, Lesetja Kganyago, has suggested that the country could reduce its inflation target without significant economic costs.

Kganyago, a proponent of a lower target, has been in discussions with the National Treasury about this possibility.

In a recent lecture, Kganyago argued that a lower target could lead to lower inflation and interest rates.

He cited the bank’s previous move to emphasize 4.5% inflation, which had a positive impact on inflation expectations and economic growth.

Studies have shown that lowering the target could be achieved with minimal negative effects on the economy.

Kganyago believes that clear communication and a focus on the 4.5% midpoint have been instrumental in achieving lower inflation.

While Kganyago hopes for a decision on a lower inflation target before 2025, other arguments in favor of this move include aligning with peer countries, narrowing the target range, and anchoring inflation expectations at a lower level.

South Africa’s inflation-targeting framework was introduced in 2000, and previous plans included gradual reductions in the target.

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